Germany, Eurozone Flash Manufacturing PMI's Near 3-Year Low, EURUSD Now Rallying (1.2570)

Markit's Flash Eurozone and Germany PMI numbers for May didn't look so hot. Some PMI's were at 35 month lows. EUR/USD hit a low of 1.251 yesterday after the PMI releases (now at 1.2570), and I'm sure the sell off was related to Greek exit fears and ECB printing risk. The Guardian's Business Blog covered the EU summit yesterday in a live post, which included outlooks on the euro by Capital Economics and Citigroup.

"Capital Economics said this afternoon that it is sticking with its forecast that the euro will slide to $1.10 by the end of this year, but feels there's a growing risk it could fall further, faster."

"Indeed, a research note just released by Citi estimates that the euro will fall to the brink of parity with the US dollar at $1.01."

As you can see in the long-term chart of EUR/USD, it recently broke through support and followed a downtrend to lower levels. The 1-year descending trading channel shows you the overall trend, so there is definitely downside risk to 1.19-1.20 support. But that doesn't mean EUR/USD can't bounce and possibly hit the new ceiling or downtrend line from May 1 (*rallying towards there right now I see at 4:00am NY). With Greek exit risk on everyone's mind, the markets will be watching opinion polls leading up to Greece's national election on June 17. If the "anti-bailout" party SYRIZA wins (Greek anti-bailout left has four-point lead - poll), and Greece reneges on the austerity plan required for EU/IMF bailout money, Greece could leave the euro zone and start printing Drachmas. If the crisis turns into complete chaos, there is a possibility that the ECB could start a massive quantitative easing program to support eurozone sovereign debt, which could pave the way for euro bonds and a European fiscal union.

Markit Flash Eurozone PMI® (source)

"Eurozone suffers worst downturn since mid-2009
  • Flash Eurozone PMI Composite Output Index at 45.9 (46.7 in April). 35-month low.
  • ƒFlash Eurozone Services PMI Activity Index at 46.5 (46.9 in April). 7-month low.
  • ƒFlash Eurozone Manufacturing PMI at 45.0 (45.9 in April). 35-month low.
  • Flash Eurozone Manufacturing PMI Output Index at 44.7 (46.1 in April). 35-month low."

Source: Markit Eurozone PMI

Source: Markit Economics Eurozone PMI

Markit Flash Germany PMI® (source)

"German private sector returns to contraction. Manufacturing output falls at sharpest pace for nearly three years, offsetting resilient services growth.

Key points:
  • Flash Germany Composite Output Index at 49.6 (50.5 in April), 6-month low.
  • Flash Germany Services Activity Index at 52.2 (52.2 in April), unchanged.
  • Flash Germany Manufacturing PMI at 45.0 (46.2 in April), 35-month low.
  • Flash Germany Manufacturing Output Index at 44.6 (47.3 in April), 35-month low."

Source: Markit Economics Germany PMI

ECB Official: On Greece, 'We Are Working on Plan A' (CNBC)
Rescue Elusive as ECB Resists Rajoy Bond-Buy Urge: Euro Credit (Bloomberg)
Eurozone governments ponder Greek exit contingency (Chicago Tribune/Reuters)
China 'should prepare' on euro: Experts (
Greek banks to get $23 billion from bailout fund (BloombergBusinessweek)
An Exit From Europe Would Be Our Own Greek Tragedy (Bloomberg)
Is Valencia Spain’s Own Little Greece? (Bloomberg)
Italy's Monti says Greece will probably keep euro (Reuters)
Could the 'Geuro' currency save Greece? (World News Australia)
Italy's Monti sees eurobonds 'not in too long' (Miami Herald)
Greek Exit Could Trigger a Run on European Banks (Bloomberg)