US S&P Global PMIs Preview: Economic expansion could struggle in July

• S&P Global preliminary PMIs are expected to come in mixed in July.
• A negative surprise in the survey is seen supportive of rate cuts.
• EUR/USD faces the next downward target at the 200-day SMA at 1.0815.

On Wednesday, S&P Global will release advanced readings for the United States (US) Purchasing Managers Indexes (PMIs) for July, a monthly survey of business activity. The survey is anticipated to indicate that US economic activity in the private sector faced mixed trends during the current month.

In June, the S&P Global Composite PMI improved to 54.8 from 54.5 in May. The Manufacturing PMI climbed to 51.6 from 51.3, and the Services PMI advanced to 55.3 from 54.8. Evaluating those results, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted, “The S&P Global PMI survey shows US manufacturers struggling to achieve strong production growth in June, hamstrung by weak demand from domestic and export markets alike. Although the PMI has now been in positive territory in five of the first six months of 2024, up from just one positive month in 2023, growth momentum remains frustratingly weak.”

When it comes to the services sector, Williamson added: “US service sector companies reported an encouragingly solid end to the second quarter, with output rising at the fastest rate for over two years. With additional – albeit more muted – support coming from the manufacturing sector, the survey data point to GDP rising at an annualized 2.0% rate in the second quarter, with a 2.5% rate seen for June. Forward momentum is therefore gathering pace.”

What can we expect from the next S&P Global PMI report?

Upcoming PMI prints are forecast to show a slight retracement in the services sector (54.4 vs. 55.3 previous), while the Manufacturing gauge is seen improving marginally (51.7 vs. 51.6 previous), although both of them maintain the area above the key 50 threshold that separates expansion from contraction.

In light of the imminent Federal Open Market Committee (FOMC) event on July 31, results from the PMIs prints will unlikely move the Federal Reserve’s monetary policy dial, as markets have already largely anticipated that the central bank will keep its rates unchanged this month.

However, surprises in the readings in any direction could either reinforce or remove  support, albeit temporarily, for a most-likely interest rate reduction at the September 18 meeting.  

When will the July flash US S&P Global PMIs be released and how could they affect EUR/USD?

The S&P Global Manufacturing, Services and Composite PMI reports will be issued on Wednesday, July 24, at 13:45 GMT. 

Weaker prints from the survey, as well as some retracement in the inflation and employment components, should carry the potential to provisionally hurt the US Dollar (USD) and lend some support to EUR/USD, although this potential scenario is seen as having a temporary effect.

Pablo Piovano, Senior Analyst at FXStreet, notes the critical 200-day SMA as a region to look closely. "Above this area, EUR/USD should keep a constructive outlook and therefore leave the door open to extra gains in the near to medium term," he adds.

"A sustainable breach of the 200-day SMA would most likely put spot under pressure and pave the way for a probable slide to the area of June lows near 1.0650," Pablo concludes.