Euro, US Dollar Look to PMI and ISM Data for Policy Cues

The Euro and US Dollar remain focused on the outlook for ECB and Fed monetary policy, with PMI and ISM reports set to guide near-term expectations.

Talking Points

Euro to Rise if Final PMI Roundup Downgrades ECB Stimulus Bets
US Dollar Looks to Services ISM, Beige Book for Fed QE Taper Cues

A busy docket of growth indicators due in European trading hours will set the stage for the European Central Bank interest rate decision later in the week. The final set of May’s Eurozone PMI figures starts things off, with expectations putting the region-wide composite index at a three-month high of 47.7 (in line with flash estimates).

The metric has tended to outperform consensus forecasts since the beginning of the year however. A similar outcome this time around may to downgrade bets on an expansion of ECB stimulus efforts and boost the Euro. An upgrade in the second revision of first-quarter Eurozone GDP data would carry similar implications. Needless to say, disappointing results are likely to yield the opposite results.

Later in the day, the spotlight turns to the US calendar, where the ISM Non-Manufacturing Composite gauge will be in focus. Expectations call for the pace of service-sector growth to increase in May, snapping a two-month deceleration streak. The Federal Reserve is also set to release its Beige Book regional economic conditions survey.

Traders will interpret the outcomes through the prism of QE3 reduction probability. That means a soft result similar to the disappointing ISM Manufacturing print earlier in the weak is likely to boost risk appetite and weigh on the US Dollar as stimulus cutback expectations are downgraded. Needless to say, supportive data will probably yield the opposite result.

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