US PMI surveys can bring volatility back to the markets

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• April S&P Global Manufacturing and Services PMIs preliminary releases are seen declining after the previous jump.
• Big deviations to the data are likely to ramp up volatility and impact the Federal Reserve pricing.
• EUR/USD bulls stay hopeful whilst above 1.0900 ahead of the release, eyeing the 1.1000 mark.

S&P Global Purchasing Managers Index (PMI) measures private sector business activity in major economies on a monthly basis and in advance of comparable official economic data. On Friday, April 21, the company will unveil the April preliminary estimates of manufacturing PMI and services PMI for the United States (US).

Global businesses are still trying to recover from the pandemic-related setback that saw the world come to a halt three years ago. It has been a bumpy road, with back and forths in the middle, but central bank decisions to tighten their monetary policies took its toll on businesses, with activity contracting for most of 2022.

In March, however, business activity in the United States unexpectedly rebounded, as demand surged, especially in the services industry. The S&P Global preliminary US Composite PMI jumped to 53.3 in March, up from 50.1 in February. The Services PMI Index rose to 53.8 from 50.6, while the Manufacturing PMI climbed to 49.3 from 47.3.

Despite the encouraging resurgence in business activity last month, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, warned that inflation remains a nagging issue, adding that “the purchasing managers surveyed indicated that selling prices were increasing at a quicker rate despite lower costs in the manufacturing sector and that the services sector is also raising prices, mainly as a result of faster wage growth.”

What to expect in the next S&P Global PMI report?

The gauge for manufacturing PMI is expected to decline to 49.0 in April, compared with the final readout of 49.2 recorded in March.

The services PMI, meanwhile, is anticipated to slow its pace of expansion, arriving at 51.5 in April vs. the previous month’s final print of 52.6. 

However, the composite PMI is expected to increase to 52.8 in the current month, as against the final March figure of 52.3.

When will be April flash US S&P Global PMIs report released and how could it affect EUR/USD?

The S&P Global PMI report is scheduled for release at 13:45 GMT, on April 21. Ahead of the key release, the US Dollar is struggling to extend its recovery momentum, keeping the sentiment around the EUR/USD pair buoyed. A stronger US PMI print will confirm a 25 basis points (bps) Federal Reserve rate hike in May while deferring rate cut expectations toward the end of this year. At the time of writing, markets are pricing an 82% probability of a quarter percentage point Fed rate hike next month, with rate cuts seen as early as July.

On the other hand, weaker US business activity data will accentuate concerns about the US economy dipping into a recession, which could fuel Fed rate cuts bets. The US Dollar is likely to show resilience in the face of the dovish Fed outlook, as it will continue to benefit the Greenback’s relative safe-haven status.

The divergent monetary policy outlooks between the Federal Reserve and European Central Bank (ECB) suggest that the path of least resistance for the EUR/USD pair appears to be the upside. That said, any immediate market reaction could peter out, as the end-of-the-week flows could come into play. It is worth noting that the Fed policymakers enter their ‘blackout period’ from April 22 ahead of the May 2-3 policy meeting, and therefore, the last words from the officials could also have a significant impact on the US Dollar valuations. This, in turn, warrants some caution for aggressive traders and before positioning for a firm near-term direction.

Yohay Elam, Senior Analyst at FXStreet, explains how the US Dollar could react to the data, “If the S&P Global PMIs, and especially the Services PMI, miss expectations, concerns about a downturn could take over. When the US economy sneezes, the rest of the world catches a cold – rushing to the safety of the US Dollar,”

“Conversely, if the figures beat estimates, investors may fear a tougher stance from Fed officials. While a 25 bps hike in May is priced in, another one in June is still uncertain. Any figure that would raise the chances of another increase in borrowing costs could push expectations higher, further boosting the Greenback,” Yohay adds.

Meanwhile, Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for the EUR/USD pair and writes: “the bull-bear tug-of-war is likely to extend, as the pair continues to waver in a tight range at around 1.0950. The 14-day Relative Strength Index (RSI) is holding above the midline, offering an edge to Euro buyers while the 1.1000 mark remains a tough nut to crack for sellers heading into the US PMIs showdown.”

Dhwani also outlines important technical levels to trade the EUR/USD pair: “On the upside, a sustained move above the psychological 1.1000 level is needed to initiate a fresh upswing toward the yearly high of 1.1076. Alternatively, immediate support awaits at the bullish 21-Day Moving Average (DMA) at 1.0912, below which the 1.0850 psychological support could be tested before the bears approach the 1.0835 static support.

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