Flash Global PMIs in Focus With EURUSD Under Pressure

The first post-Iran deal checkup on the global economy focuses on the Eurozone as traders try to trade the monetary policy outlook following the reopening of the Strait of Hormuz.

Key Points to Drive the Markets

• EURUSD is under pressure amid divergence between the US and Eurozone economies amid higher energy prices, as the dollar gains on a more hawkish Fed.
• Flash PMIs could provide the first insight into the economic reaction to the opening of the Strait of Hormuz.
• UK PMI release is likely to be overshadowed by political wrangling and Starmer widely expected to announce his resignation later today.

First Signs of Rebound After Deal

This week's report on flash PMIs could be particularly important amid the confusion over the status of the Strait of Hormuz. After the US and Iran signed a deal last week to reopen the waterway, ships have been hesitant to cross the Strait. Amid ongoing negotiations, Iran threatened to close the waterway again over the weekend, but apparently, this did not happen after both sides gave positive views of a high-level meeting on Sunday to negotiate a permanent settlement on the war. The PMI survey is ongoing, and Tuesday will see the release of partial results that might capture some of the initial reaction of businesses to the deal. This could help the market understand whether there is a recovery in optimism in the economy, which could indicate a rebound after the constraints imposed by higher energy prices since the war started.

The Eurozone will be in particular focus after falling into negative growth in the first quarter and coming under pressure from higher energy prices in the second. The ECB was the first major central bank to hike directly as a result of the war, and the uncertainty has left further tightening on the table. Europe's weak economic performance has weighed on the shared currency, and traders will be closely watching PMI data for signs of recovery. Flash PMIs are particularly useful because they are "forward-looking" and provide insight ahead of the official data to be released next month. The EURUSD has struggled amid a stronger dollar, as US economic indicators remain positive while the Eurozone is expected to remain in contraction. The UK is also in contraction, but with Prime Minister Keir Starmer expected to announce his resignation today, other factors are likely to be more important for the pound.

EU-US Gap To Close Slightly

The consensus among analysts is that PMIs will indicate divergence between the Eurozone and US economies. However, the distance between them is expected to narrow slightly, while the EU business outlook is improving and the US economy faces a more hawkish Fed under Kevin Warsh. The Eurozone composite flash June PMI is expected to improve to 49.1 from 48.5 in May but remain below the 50 level that separates expansion from contraction. After the ECB expressed concern about energy prices spreading into the broader economy, the market might focus more on the services sector. Meanwhile, US flash June PMIs are expected to stay expansionary across the board, but the composite index is projected to drop to 50.6 from 51.5 a month earlier. Higher energy prices are expected to slow industrial growth. If the gap remains, it could keep the EURUSD under pressure, as the Fed has more room to remain hawkish if it takes a while for the energy supply situation to normalise.

EURUSD Could Bounce on Double Bottom Pattern

After breaking below the lower trendline near 1.1500, EURUSD has declined to form what appears to be a potential double bottom at 1.1418. Despite failing to bounce and forming a potential pennant or triangle pattern, falling to the said level increases the odds of a bounce, given the potential formation. A continuation higher could revisit the lower trendline initially and then face the media VWAP near 1.1560. On the flip side, if the recent trend continues, it will expose 1.1400, followed by 1.1375 and 1.1350.

Source: SpreadEx | EURUSD, Daily Chart