The coming week promises no shortage of Euro/US Dollar volatility, and economic sentiment could take a further turn for the worse on key PMI data. Much has been made of the fact that Euro Zone Purchasing Managers Index reports have shown clear signs of economic recovery. Yet the “hard data” in Industrial Production and other timely data releases have not shown commensurate improvement. It will subsequently be important to watch whether the recent pickup in investor sentiment is warranted and sustainable. Consensus forecasts call for a noteworthy jump in the German ZEW business survey’s “Economic Sentiment” index—implying that business conditions are steadily improving. Of course, that data could just as easily reflect the effects of a fairly substantial rally in global equity markets. A worse-than-expected result would likely deflate domestic indices and force a commensurate drop in the EUR/USD.
Later Purchasing Managers Index data likewise remains important, and disappointments in said releases could also herald a turn in financial market sentiment. Recent Euro Zone Industrial Production figures showed record year-over-year drops in domestic activity. Such data stands in stark contrast to improving trends in PMI indices, and one of these pieces of data must shift. Unless we see sustained improvement in PMI figures and commensurate gains in Industrial Production, recent signs of economic recovery will amount to little.
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