Euro Forecast: Can July’s PMI Improvement Survive into August?

EUR/USD, Eurozone PMI Key Takeaways

• For this month, the Eurozone Manufacturing PMI is seen edging up to around 52.0, while Services PMI is expected to slip slightly to 51.5.
• For the euro, the most supportive outcome would be a composite PMI holding comfortably above 50 alongside softer price pressures.
• EUR/USD is showing a “gravestone doji” on the daily chart, hinting at a market reversal from bullish to bearish sentiment

The Eurozone’s August flash PMI surveys are due tomorrow, with investors looking for evidence that July’s improvement in activity was more than a temporary rebound.

Looking back, last month’s surveys showed the Eurozone economy firming up: The composite PMI rose to 52.0 from 50.0 in June, while services recovered to 51.7 and manufacturing remained in expansion territory at 51.9.

For this month, the Manufacturing PMI is seen edging up to around 52.0, while Services PMI is expected to slip slightly to 51.5. That would still suggest an expanding private sector, but not one gaining much additional momentum.

Eurozone PMIs: Manufacturing still needs stronger demand

Manufacturing has been one of the more encouraging parts of the recent data, with July showing the strongest factory output growth since early 2022.

The concern is that some of that strength reflected firms working through existing orders rather than a decisive improvement in new demand. That makes the “new orders” component particularly important this month. A headline PMI above 50 would be constructive, but weak order books would leave doubts over how durable the recovery is.

Eurozone PMIs: Services may set the tone

The services survey will likely matter more for the overall market reaction.

Activity rebounded sharply in July after three months of contraction, but the expected easing to 51.5 would suggest momentum is stabilizing rather than accelerating. Given the sector’s much larger role in the Eurozone economy, a significant downside surprise would be difficult for stronger factory data to offset. Further gains in Employment would strengthen the case for a more durable recovery into the second half of the year.

Eurozone PMIs: Prices remain important for the ECB

For the ECB, the inflation components may be just as important as the growth figures.

July’s PMI surveys showed some moderation in business cost pressures. Another easing in input and selling price inflation would be reassuring, particularly if activity remains firm. On the other hand, a renewed rise, especially in services costs, would be less comfortable and could reinforce expectations that policy needs to remain restrictive.

After July raised hopes that the Eurozone economy was gaining traction, August’s surveys will show whether that improvement has a firmer foundation. For markets, the most supportive outcome would be a composite PMI holding comfortably above 50 alongside softer price pressures.

Euro Technical Analysis: EUR/USD Daily Chart

Source: Tradingview, StoneX

Speaking of markets, EUR/USD broke out to a 3-month high above 1.1670 resistance earlier this week before reversing on Thursday.

As we go to press, the pair is showing a “gravestone doji” on the daily chart. For the uninitiated, a gravestone doji is a candlestick pattern that suggests a market reversal from bullish to bearish sentiment, characterized by a long upper shadow and little to no lower shadow. It is commonly seen at near-term tops.

This pattern occurs at a particularly interesting level: The 1.1670 area has been a reliable zone of support and resistance since April, so continued bearishness through that level to close the week would strengthen the case for a pullback in the world’s most widely-traded currency pair. Conversely, a strong PMI survey and bounce from 1.1670 would negate the bearish implications of today’s price action and suggest that EUR/USD could extend its rally into next week.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX