Euro extends losses after soft PMIs release

The euro has edged lower on Friday. EUR/USD is trading at 1.0687 in the European session, down 0.14% on the day.

Is the eurozone economy slowing down?

The week ended on a sour note in Europe as June PMIs declined in the eurozone. The Services PMI dropped to 52.6, down from 53.2 in May and below the market estimate of 53.5. The Manufacturing PMI eased to 45.6, down from 47.3 in May and shy of the market estimate of 47.9. The manufacturing sector remains in a prolonged depression and hasn’t recorded growth (a reading above 50.0) since June 2022. Germany and France, the two largest economies in the eurozone, also posted weaker services and manufacturing PMIs in June.

The weak PMI data could point to slow growth in the second quarter. Still, this is just one report and the European Central Bank will be looking at further data before deciding if another rate cut is appropriate. The ECB cut rates earlier this month, the first cut since it embarked on a rate-tightening cycle to curb inflation.

Inflation has proven to be stubborn as the ECB tries to bring it back down to the 2% target. The May CPI report was disappointing, as headline CPI rose in May from 2.4% to 2.6% and core inflation climbed to 2.9%, up from 2.7% in April. The ECB has shown that it is willing to lower rates even if inflation is above the 2% level but it is unlikely to cut again before inflation moves lower.

Another headache for the ECB and the euro is the uncertainly over the elections in France, which take place on June 30th and July 7th. Stock markets in France have already suffered a sell-off and that could be repeated if the extreme-right makes gains, as it did in the recent European Parliament elections.
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EUR/USD Technical

• EUR/USD tested resistance at 1.0719 earlier. Above, there is resistance at 1.0735
• 1.0686 and 1.0670 are providing support

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