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Market Analysis

EUR/USD Surges on Disappointing PMI Data, Stocks Rise

In a surprising turn of events, EUR/USD has rebounded above the crucial 1.0850 level. This surge comes after the US released its August PMI data, which fell short of expectations. Adding to the USD’s woes, Wall Street’s positive momentum is pulling the currency down and propelling the EUR/USD pair higher.

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US Stocks Rise as Bond Yields Moderate Ahead of Economic Symposium

In a positive development for investors, stocks witnessed a substantial surge today as interest rates on government bonds stabilized, fueling optimism for the nation’s economy.

Tech and media shares, led by industry frontrunner Nvidia, played a significant role in pushing both the S&P 500 and Nasdaq to new record levels.

The bond market and monetary policy have been under close scrutiny, especially with the anticipation surrounding Nvidia’s forthcoming earnings announcement.

Today, the US note yield saw a sharp drop to 4.2%, while the Treasury yield diminished to 4.96%. These figures indicate a favorable trend in the bond market, contributing to an increase in investor confidence.

Central banks around the globe may contemplate easing monetary policies in response to the decline in S&P Global’s Purchasing Managers’ Index (PMI) – a vital measure of economic well-being.

A drop in the PMI indicates potential challenges ahead. However, the stabilization of Treasury yields and the surge in US stocks offer hope for a robust recovery.

Investors eagerly await the Jackson Symposium economic conference and a speech from the Federal Reserve chair, which is expected to provide crucial insights into future monetary strategies. These insights could guide investor decisions and further shape the market trajectory.

Meanwhile, in the Eurozone, the PMI has reached a low not seen in 33 months, impacting German government bonds and bond yields. This underscores the challenges faced by the European economy, emphasizing the contrast between the US and Eurozone markets.

Canadian Retail Sales Grow Marginally in June Amid Mixed Performance

Canadian retail sales experienced modest growth of 0.1% in June, with expansion primarily driven by motor vehicles and parts dealers, which saw a notable increase of 2.5%.

However, core retail sales, excluding gasoline stations, fuel vendors, motor vehicles, and parts dealers, declined by 0.9% during the same period, falling short of market forecasts that predicted a 0.3% growth.

Year-on-year, retail sales in June witnessed a decrease of 0.6%, marking the first drop since the pandemic-induced slump in May 2020. While the expansion in motor vehicle sales provided some positive momentum, the overall performance of core retail sales highlights a degree of sluggishness in consumer spending.

The mixed retail sales data in Canada had a relatively smaller impact compared to the disappointment in the US Purchasing Managers’ Index (PMI) data.

The slowing demand in the US private sector caused the S&P Global US Composite PMI to fall to 50.4 in August 2023, below market expectations of 52.0. This represents the slowest expansion in private sector activity since February, with both the service sector and manufacturing experiencing a slowdown in output.

New orders declined for the first time in six months, while job creation reached its lowest point in three years. Additionally, input costs rose due to higher fuel, wage, and raw material expenses.

Despite the weaker sentiment, US firms displayed slightly improved confidence in their output outlook for August and planned investments in marketing initiatives.

As a result, the US Dollar and Dollar Index weakened significantly following a bullish trend earlier in the European session.

The PMI data globally today presented a pessimistic outlook, leading to adjustments in market expectations for interest rate cuts in 2024.

Market participants now anticipate rate cuts in the first and possibly second quarter of 2024, although these probabilities are subject to continuous change as Central Banks emphasize data-driven decision-making.

The upcoming Jackson Hole Symposium is expected to play a pivotal role in shaping market dynamics for the rest of the week as Central Bankers take the stage. Comments made during the event could have a significant impact on overall sentiment, influencing investor expectations and market movements.

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Authors

  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.

  • Zahari Rangelov

    Zahari Rangelov is an experienced professional Forex trader and trading mentor with knowledge in technical and fundamental analysis, medium-term trading strategies, risk management and diversification. He has been involved in the foreign exchange markets since 2005, when he opened his first live account in 2007. Currently, Zahari is the Head of Sales & Business Development at TraderFactor's London branch. He provides lectures during webinars and seminars for traders on topics such as; Psychology of market participants’ moods, Investments & speculation with different financial instruments and Automated Expert Advisors & signal providers. Zahari’s success lies in his application of research-backed techniques and practices that have helped him become a successful forex trader, a mentor to many traders, and a respected authority figure within the trading community.