European Factory Survey Will Set Tone for Draghi Testimony

Mixed manufacturing PMI to Further Pressure ECB Head

European factories have shown uneven confidence from purchasing managers. German results have been steady and no surprise from the European economy’s engine, but results from France have been mixed after they managed to exceed expectations and show signs of expansion for the first time in 18 months in June before tapering off, but still with expansion in sight. The European PMIs will be released at 3:00 am EDT and 3:30 am EDT.

Results from the factory surveys will be top of mind when European Central Bank President Mario Draghi takes the stand in Brussels. He will testify at the European Parliament’s Economic and Monetary Committee and the market will be watching for his comments on possible future actions by the central bank to boost European growth. President Draghi takes the stand at 9:00 am EDT. After the Federal Reserve’s decision to stand pat on raising interest rates it has turned up the heat on global central banks to intervene on behalf of growth.

French Manufacturing PMI Sending Mixed Messages

After impressing with two mostly back to back flash manufacturing PMI results in May and June, France has fallen back to old habits as July was 49.6 when an expansionary figure of 51.1 was expected. Readjusting forecasts downward did not help as French purchasing managers were not optimistic in August at 48.6 versus a 49.8. The rumours of French factory recovery seems to be exaggerated and the nation now has the second worst amongst members of the European Union.

A poor French manufacturing PMI will pressure the European Central Bank (ECB) to further stimulate the economy. The ECB is already under pressure from the lack of action from the Federal Reserve whose Federal Open Market Committee refrained from issuing the first U.S. rate hike in nearly a decade. The spotlight is now on President Mario Draghi as he will no doubt try to use rhetoric as much as possible without committing to any actions this week.

German Engine Continues to Purr

German manufacturers swooped into the rescue of overall Eurozone results. The flash PMI published in August crushed expectations of 51.7 with a solid 53.2 reading. German factories have not been below 50 since June 20, 2013 but last month’s figures put a strong mark well above that. It is no surprise that the German economy is pulling the rest of the Eurozone but it will be interesting to see if the member nations economies continue to diverge in the speed of recovery given the ECB stimulus.

ECB Draghi Will Be Held to His Pledge

European Central Bank President Draghi will testify before the European Parliament’s Economic and Monetary Committee a week after the American central bank’s Federal Open Market Committee (FOMC) left rates on hold. The Fed’s inaction leaves the ECB under pressure and could trigger a rate cut as soon as October 10 when the Monetary Policy meeting takes place in Brussels. The precariousness of global growth made the Fed pause its intended plans to hike rates, and could very well put them off for the rest of the year. It is the same fragile recovery that the ECB has to nurture in Europe and calls for it to step up its quantitative easing efforts will only get louder if factory optimism falters.

Euro events to watch this week:

Wednesday, September 23
3:00am EUR French Flash Manufacturing PMI
3:30am EUR German Flash Manufacturing PMI
9:00am EUR ECB President Draghi Speaks

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza