Breaking: United States S&P Global Composite PMI improves to 53.6 in July

Business activity in the United States' (US) private sector expanded at an accelerating pace in July, with the S&P Global Composite Purchasing Managers' Index (PMI) improving to 53.6 (preliminary) from 51.9 in June.

In this period, the Services PMI rose to 53.6 from 51.2, while the Manufacturing PMI ticked down to 53.8 from 53.9.

Assessing the survey's findings, "US businesses reported a good start to the third quarter, the ‘flash’ PMI survey data broadly consistent with GDP growing at an annualized 2.0% against a 1.2% pace signalled for the second quarter," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

"July saw a concerning intensification of supply chain delays and accompanying renewed upturn in price pressures, constraining growth and subduing demand," Williamson added and noted that events over recent days in the Middle East will have only further exacerbate "supply chain and price worries."

Market reaction to US S&P Global PMI data

These figures don't seem to be having a noticeable impact on the US Dollar's performance. At the time of press, the USD Index was virtually unchanged on the day at 101.45.

This section below was published as a preview of the preliminary US S&P Global Purchasing Managers' Index (PMI) data for July at 10:00 GMT.

• The S&P Global flash PMIs for July are expected to show stable business expansion. 
• Investors will pay close attention to comments surrounding input costs.
• EUR/USD remains technically bearish in the near term. 

S&P Global will release the July flash Purchasing Managers Indices (PMIs) for the United States (US) on Friday. These surveys of top private-sector executives are seen as an early indicator of the country’s economic health.

Market participants anticipate the S&P Global Services PMI to decline slightly to 51.0 from 51.2 in June, while the S&P Global Manufacturing PMI is expected to edge higher to 54.5 from 53.9, with both prints remaining in the expansion territory above 50. In addition to headline PMI figures, the surveys also include comments on employment and input inflation, which could influence the US Dollar’s (USD) valuation. 

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

While PMI surveys are forecast to reaffirm healthy business conditions in the private sector, details surrounding input costs could ramp up market volatility. Although the softer-than-expected June inflation data from the US eased bets for a Federal Reserve (Fed) interest rate hike in July, the recent increase in Oil prices caused investors to refrain from pricing in a prolonged policy hold.

With the US and Iran ramping up military aggression in the Middle East, the barrel of West Texas Intermediate (WTI) is up nearly 30% in July. In the meantime, the CME FedWatch Tool shows that markets are pricing in a nearly 80% probability of an at least 25 basis points (bps) Fed rate hike by September.

Previewing the PMI data, “we expect both the S&P manufacturing and services PMIs to improve in July. Manufacturing is likely to rebound to 54.5, in line with strong regional surveys in the month (Empire and Philly Fed),” TD Securities analysts said.

“Meanwhile, services is likely to continue improving to 51.5. NY Fed services improved in July, and we expect S&P to begin catching up to ISM,” they added. 

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 PMIs reports will be released at 13:45 GMT on Friday. As previously noted, they are expected to show that US business activity continued to expand in July.

In case the publication suggests that business owners are facing increasing input costs in July and considering transferring those costs to customers by raising prices, markets could see that as a sign of inflationary pressure resurfacing again. In this scenario, the USD could continue to gather strength heading into the weekend and weigh on EUR/USD.

Conversely, an unexpected drop into the contraction territory below 50, in either the headline Manufacturing or the Services PMI, could hurt the USD with the immediate reaction and help EUR/USD hold its ground.

Middle East tensions risk being underplayed in early July PMI signals

Analysts at Rabobank caution that the initial July PMI signals may not fully capture the latest geopolitical and commodity-market developments. They argue that “this preliminary reading may understate the impact of the escalation in the Middle East,” noting that “the July poll was probably conducted in the past two weeks, so the results may be skewed if many respondents replied early – and therefore could not fully factor in the current situation in the Middle East, or this week’s increase in oil prices.”

Eren Sengezer, European Session Lead Analyst, shares a brief technical outlook for EUR/USD:

“EUR/USD trades below the 20-day Simple Moving Average (SMA) following multiple failed attempts to clear that level earlier in the week. Additionally, the Relative Strength Index (RSI) indicator on the daily chart stays near 40, reaffirming the bearish stance.”

“On the downside, 1.1370-1.1350 (Bollinger Band lower arm, static level) aligns as the first support area ahead of 1.1270 (static level) and 1.1160 (static level). Looking north, the immediate resistance level could be spotted at 1.1420 (20-day SMA), followed by 1.1470 (Bollinger Band upper arm) and 1.1570 (100-day SMA).”