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#1 25-05-2020 10:01:36

johnedward
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From: Paris - France
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Europe's PMI indexes rebound after historic lows

Europe's PMI indexes rebound after historic lows


The monthly Purchasing Manager's Index, also referred to as the PMI, is a major index that financial analysts monitor. It describes the expanding or contracting aspect of a nation's economy. Produced in all major countries, the release is of particular importance to investors who want to know the effect it will have on forex currency pairs.

Last week, Europe's PMI index demonstrated a rebound. What does this mean?

http://www.forex-central.net/forum/userimages/Eurozone-PMI.jpg


Interpreting the May 2020 PMI for the Eurozone

Europe's PMI is split into 2 parts: services and manufactured goods. As most economies are service-based (restaurants, insurance, etc.), services in the index have a greater impact on the markets.

The PMI line in the sand is at 50. Any trace above this line suggests expansion. Below this level, the economy is contracting.

Last month, the index sunk to a new low: 11.9 (services) and 17.9 (goods). Typically, the index rarely contracts below 46 or expands above 54. When this happens, the central banks consider that the economy is shifting into a recession or overheating, which ultimately leads to policy decisions (interest rates, etc.).

While the service and manufacturing sectors have fallen to 29.0 and 35.5 respectively, they still show a contraction ahead.

However, traders celebrated the rebound by buying the EUR across all forex pairs. The EURUSD crossed the 1.10 level, while the EURJPY and EURGBP pairs also went up. However, the euro returned some of its gains at the end of last week as traders were eager to cash in on their profits.

http://www.forex-central.net/forum/userimages/Eurozone-PMI-2.jpg


IHS Markit also offers another interesting view of the May data, which further explains the enthusiasm of pro-European investors. It showed the evolution of the Eurozone PMI index compared to the COVID-19 Containment Index. In other words, we know that the PMI index cannot show positive economic data when countries are in a containment situation (content).

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