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European recovery is lead by Germany and France. Today’s PMI figures showed. The other countries are lagging behind, and the forex market reacts cautiously. Will the whole continent prosper? Will EUR/USD break out of the range?

European Purchasing Managers’ Indexes were better than expected. Data from France was the earliest.  French Flash Services PMI scored 48.9, better than 46.6 that was expected. The bigger surprise came from the  French Flash Manufacturing PMI that passed the 50 mark, scoring 50.2 instead of 49.1.

50 is important since it indicates that the industry is expanding, rather than contracting. This French figure was above 50 in April 2008. 15 consecutive months of contraction were cut.

German data reinforced the strength:  German Flash Manufacturing PMI scored 49 instead of 47.1 that was expected. The  Flash Services PMI supplied the big surprise: 54.1 instead of 48.8. The services sector in Germany is very optimistic! In Germany, contraction in this sector was seen for a whole year.

The rest of the continent is lagging behind

While the all-European figures were also better than expected, they didn’t cross the crucial 50 point mark.  Flash Manufacturing PMI scored 47.9 instead of 47.8 – not a big deal.  Flash Services PMI already scored a bigger surprise, 49.5 instead of 46.6, but still fell short of the wanted 50 mark.

This pattern of growth in Germany and France while the rest of the continent is contracting is a repeat of last week’s European GDP figures for the second quarter of 2009, where Germany and France posted growth of 0.3% each, and but the whole Euro zone contracted by 0.1%.

Spain is suffering from terrible unemployment. Ireland was hit badly by the global crisis, and Italy isn’t growing. Those are the other strong countries in Europe. Portugal and Greece aren’t doing much better…

Forex market reaction

The return to growth, as seen in the PMI figures helped EUR/USD to make gains. It went from 1.4240 to 1.43 during these releases, and seems to stay there.

While EUR/USD is trading in its highest levels this week, 1.43 isn’t higher than last Friday’s levels. These good figures help the Euro regain its losses, but don’t take it higher. This matches the pattern of the continent’s economic situation: Germany and France keep the Euro zone above the water, but still not on safe ground.

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