EURUSD ticks lower despite disappointing US data

Summary:

• US PMI readings once again suggested deterioration

• Housing data comes below expectations

• Weekly piece of data continues to show impressive pace of the US labor market tightening

• ECB minutes reinforce latest Bank’s message

• EURUSD mostly muted to the incoming data stream

In today’s macroeconomic calendar one could find a lot of releases from the US economy including PMIs and housing market data. Combining it with the PMI release in Europe and the publication of the ECB minutes one could expect an increased volatility on EURUSD throughout the day. Nevertheless, most of this data readings did not translate into any large move on the main currency pair that moved slightly lower following the release of the latest data pack.

The US manufacturing PMI reading saw decline once again rising questions whether it is a beginning of a new trend or just a prolonged pullback. Source: Macrobond, XTB Research

The US PMI indices released by Markit confirmed the expected decline in both services and manufacturing gauges. However, the scale of a drop was bigger than expected in both cases. The index for the manufacturing sector was expected to slide from 55.3 pts in July to 55 pts in August. The actual reading saw a decline to 54.5 pts, the worst reading since late-2017. The services gauge was also expected to downtick just minorly from 56 pts to 55.8 pts while the preliminary data released today pointed for a drop to 55.2 pts, the worst since April 2018. In turn the composite gauge moved from 55.7 pts in July to 55 pts in August. This is preliminary data for August but if it will be confirmed by actual report published on 6th of September it will mark the 4th consecutive month of declines in both services and manufacturing indices. In such case investors may grow concerned of the situation within the US economy.

Not long after the PMI data was published investors were offered a piece of data from the US housing market. News home sales shrinked in July by 1.7% MoM while market consensus pointed for a 2.2% MoM increase. Taking a look at the specific numbers we can see that as much as 627k new homes were sold in the previous month while the economists surveyed by Bloomberg heralded a reading of 645k. Moreover, the prior value of 631k was revised up to 638k. Do notice that it is the third month when sales of new homes decline in the US. It was also the weakest print since January.

While the PMI data disappointed investors the same cannot be said about labor market figures. The tightening of the US labor market continues at impressive pace. Source: Macrobond, XTB Research

Apart from that the weekly piece of data from the US labour market was published prior to the PMI and housing data. As much as 210k people filed for the unemployment insurance for the first time in a seven day period ending on 18th of August. This marks a 2k decline against prior reading of 212k. Moreover, it was also below the market expectations of 210k.

Earlier today the protocol from the latest ECB meeting was published. The document did not bring any freshness to the discussion on the European monetary policy as central bank mostly reinforced its message included in a statement released along with the decision. Main bullet points of minutes are as follow:

• The growth within the Eurozone remains solid and in-line with June’s projections

• The slowdown in the first half of the year is expected to be temporary

• The Governing Council is unanimous in maintaining policy stance

• Risk of protectionism may undermine investors confidence

• Uncertainties concerning the inflation outlook diminish

As one can see there is nothing new in the document and similarly there was almost no reaction to the publication when it comes to the EURUSD price action. In fact the pair remained quite muted to the incoming data stream today. However, the pair began to decline in the aftermath of the housing market data release. This is quite interesting as both new home sales and PMIs fell short of market expectations therefore in theory should depress USD rather than provide boost to it. Nevertheless, the pair is still trading not far from the 1.1575 handle. If the mentioned downward move is to extend over the rest of a day the 1.1510 handle may be a level to watch as it has seen some price action in the past.

EURUSD has seen some downward pressure following the release of the US housing market data but the scale of move is rather small. Source: xStation5