According to the headline figure, 50.8, the US manufacturing sector is growing at a slower pace than last month, and slower than expected – 52.1 points. Looking into a few components, things are significantly better. Is that what is helping the EUR/USD recover?
50.8 points is on the growth side of the 50 point equilibrium point, but lower than last month’s 51.6 number. But there are differences that make the current release better:
- New orders flipped from contraction to growth – from 49.6 to 52.4 points.
- Employment is almost unchanged: the index dropped from 53.8 to 53.5 points. This still projects nice growth in the Non-Farm Payrolls.
- Inventories dropped sharply: from 52 to 46.7 points. This means that inventories are falling – they will need to be replenished later on, so this is actually a good figure.
- Backlog of Orders improving: Though still in contraction zone, at 47.5 points, the rise from 41 means is also positive.
- Prices are falling: the biggest change is a 15 point drop from 56 to 41 in prices, especially of raw materials. QE2 brought a global rise in commodity prices. It prevented deflation in the US but also squeezed the purchase power of the American consumer and weighed on the economy. The sharp drop in prices is good news.
In addition, the drop that from 51.6 to 50.8 isn’t so dramatic and is totally different from the big leap in the Philly Fed Index.
EUR/USD is mostly moving on the Greek mess following the announcement about a referendum – an announcement that sent the pair back to the levels before the EU Summit.
But now it is on the rise again, reconquering the 1.3650 line it lost earlier. One of the reasons is this report, although as aforementioned, a correction to the collapse is also a major reason.
For more on the euro, see the EUR/USD forecast.
Also ISM’s Hocomb says that this is a better one.
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