Eurozone data weakness persists ahead of US NFP

There’s still no end in sight for the downturn in Eurozone data. After mostly disappointing economic pointers throughout much of the first quarter, this morning we found out that German business confidence was actually gloomier than previously thought in April. The Services PMI was revised downwards, falling to its lowest level in more than 18 months. Services PMIs from Spain and Italy also came in weaker than expected, causing the Eurozone final PMI to be revised down to 54.7 from 55.0 reported initially. On top of this, retail sales in the single currency block rose in March by a modest 0.1% month-over-month compared to an increase of 0.5% expected, while Spanish unemployment fell by a less-than-forecast 86,700 in April rather than 100,000 expected. Friday’s soft Eurozone data comes a day after the bloc’s CPI measure of inflation unexpectedly weakened to 1.2% year-on-year in April while core CPI dropped to 0.7% from 1.0% previously. As a result of the mostly weaker data, the euro has come under pressure against her stronger rivals such as the US and commodity dollars. Market participants are probably expecting the European Central Bank to now remain cautious longer than expected, even if the ECB thinks the downturn in data is due to temporary factors.

But with the euro already under significant pressure in recent days, it may be due a technical oversold bounce anyway. However, it could also rebound by a potentially disappointing US jobs report, which is due for publication later on today. Analysts seem to be optimistic, though, that we will have better numbers for April than we did for March, when the headline non-farm payrolls came in at just over 100K. This time, they expect the NFP to print about 190K. But with some of the leading indicators – including the employment components of the manufacturing and non-manufacturing PMI reports – coming in weaker than expected earlier this week, the headline figure may disappoint those expectations. The market is probably going to pay greater attention to the wages part of the jobs report, for the employment is at or near potential full employment anyway while the unemployment rate is at a post-crisis low of just 4.1% and expected to have dropped to 4.0% in April. On the wages front, the average hourly earnings section of the jobs report is expected to print 0.2% growth month-over-month. Anything more than this is likely to aid the dollar’s recovery further – at least in the short-term – as it would boost expectations of more aggressive rate increases from the Federal Reserve. However, the bigger risk would be if the numbers disappoint. The dollar may have gotten ahead of itself and what better excuse for the buck longs to unload their positions than a potentially disappointing jobs report. We have already written a technical report on the EUR/USD on Thursday.