Will PMI’s Aid EUR and GBP Rallies?

European equity markets are expected to open a little higher on Monday as traders await a selection of manufacturing PMI reports from across Europe as well as some unemployment data.

US Bank Holiday Weighs on Volumes Early in the Week

Trading volumes are likely to be relatively subdued at the start of the week, as we’ve already seen evidence of in the Asian session overnight, due to Tuesday’s bank holiday in the US and the half day today that precedes it. Of course, this doesn’t mean markets will necessarily be flat and the constant stream of data throughout the day could aid this.

Central Bank Hangover

Japanese and Chinese Data Beat Expectations

We’ve already had some decent manufacturing numbers out of China and Japan overnight, with the PMIs both beating expectations and the Tankan index rising to 17 – its joint highest reading in almost a decade. The yen hasn’t been overly responsive to the data though, with the Bank of Japan remaining among the increasingly few central banks that is unlikely to tighten monetary policy any time soon, although more numbers like this may change that.

PMIs Put Focus Back on EUR and GBP

Sterling and the euro were two of last week’s standout performers as the heads of both central banks delivered quite hawkish speeches – intentional or not – that went against their previously dovish stance. While we’ve known for some weeks now that policy makers at both the Bank of England and the ECB have become increasingly open to tighter monetary policy, this shift from Mark Carney and Mario Draghi was a sign that even the more dovish policy makers may be reluctantly accepting the possibility that monetary policy will become less accommodative.

Week Ahead Dollar Weaker After Hawkish Comments From Central Banks

With sterling and the euro both consolidating around their recent highs against the dollar, traders may be looking to today’s PMI numbers to provide the catalyst for another push higher. We’ve seen a gradual improvement in sentiment in the euro area over the last year, as the economy finally begins to pick up following years of mediocre growth. The UK PMI has benefited greatly over the last year from the Brexit-related collapse in sterling, as foreign buyers look to take advantage of the much cheaper prices.

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Craig Erlam

Craig Erlam

Senior Currency Analyst at OANDA
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the Wall Street Journal and The Telegraph, and he also appears regularly as a guest commentator on networks including Sky News, Bloomberg, CNBC and BBC. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.