Why is the Upcoming EU PMI Important for Traders?
On Wednesday, November 23, the European Purchasing Managers Index (PMI) will be published. This is an important signal for investors and traders. This industry and service sector indicator best determines economic progression or stagnation. Accordingly, traders are waiting for the release to decide whether they will be buying or selling the Euro.
What is EU PMI?
The PMI is a special index that reflects the current state of the economy of a country or separate branches of the economy. As a rule, it assesses two main branches of the economy:
- Industry
- Services
EU PMI has the strongest influence on the Eurozone economy. It is calculated by polling purchasing managers in several categories. In the poll, managers mark how business conditions have changed compared to the previous month, whether they have improved, or worsened, or not changed at all.
Accordingly, the PMI can affect the price of the Euro And European stock indices.
EU PMI’s an open window to sell the Euro?
On Wednesday, PMIs for services and industry in France, Germany, and the European Union will be released throughout the day. Investors will be comparing the new data with previous data to make an analysis of the current economic situation in Europe.
It is likely that a significant decline in the PMI in Europe as a whole will indicate a recession in the economy, while a significant increase in the PMI could be seen as a positive signal for investors.
Global European Union Composite PMI
This indicator has a big influence on forex. Therefore, the Euro will be in the spotlight during the release of data, which is expected to increase volatility.
At the moment, investors expect a slight decline in the European PMI. This may have a negative impact on the EUR quotes against other currencies. However, if the PMI goes up, such an improvement in economic expectations may contribute to the demand for the currency.
Conclusion
The final composite PMI, which tracks the manufacturing and services sectors, for the Eurozone, in the 19 countries using the Euro, fell to a 23-month low of 47.3 in October from September’s 48.1.
The EU PMI data for October signals increasing economic stress. Accordingly, the economy is at increased risk of contracting in the fourth quarter.
As a result, the Euro fell against the US Dollar for a third straight session, hitting two-week lows amid a grim outlook, which could hinder the ECB’s policy tightening plans.
Summary
- EU PMI is a survey-based index that aims to measure the performance of the manufacturing, services and construction sectors.
- PMI is a diffusion index – the value of the index indicates the direction of a trend and how widespread it is. While a value of 50 is neutral, the figures above show an expansion in a sector and the figures below show a contraction.
- At the moment, investors expect a slight decline in the European PMI. This may have a negative impact on the EUR quotes against other currencies. If the situation changes and PMI goes up, such an improvement in economic expectations may contribute to the demand for the currency.
