The Eurozone’s August flash Purchasing Managers’ Index (PMI) surveys, due Friday, will gauge whether July’s improvement in business activity marked the start of a durable recovery or a temporary rebound.
According to the latest projections, the Manufacturing PMI is expected to edge up to around 52.0, while the Services PMI is forecast to slip slightly to 51.5. A composite reading above 50 would signal continued expansion, though the lack of strong momentum suggests the recovery remains fragile. The new orders component in manufacturing will be closely watched, as recent strength may have stemmed from firms working through existing backlogs rather than a pickup in demand.
The services sector, which carries greater weight in the Eurozone economy, could set the tone for market reaction. After three consecutive months of contraction, activity rebounded in July, but the anticipated easing to 51.5 would indicate stabilization rather than acceleration. Further gains in employment would bolster confidence in a more sustained recovery into the second half of the year.
For the European Central Bank, the inflation components of the PMI data may be equally significant. July’s surveys showed some moderation in business cost pressures, and another decline in input and selling price inflation would ease concerns about persistent inflationary pressures. Conversely, a renewed rise—particularly in services costs—would complicate the ECB’s policy path and reinforce expectations for prolonged restrictive settings.
The technical outlook for the euro has grown cautious after EUR/USD briefly broke above 1.1670 resistance earlier this week before reversing on Thursday. The pair is now displaying a gravestone doji on the daily chart, a candlestick pattern often interpreted as a signal of a near-term reversal from bullish to bearish sentiment. The 1.1670 area has acted as a key inflection point since April, and a weekly close below this level would strengthen the case for a pullback. If, however, the PMI data surprises to the upside and EUR/USD rebounds from 1.1670, the bearish implications of the pattern would be negated, potentially clearing the way for further gains.
