FX.co ★ EURUSD: The euro declined after reports on producer prices and retail sales

The data on the eurozone services sector provided little support to the euro and instilled confidence in traders in continuing the upward trend, but the inflation and retail sales report quickly returned the market to its morning opening levels.

According to the final Markit report, the PMI Purchasing Managers Index for Italy was 50.0 points in May, which indicates a complete lack of growth in the sector. Economists did predict a decline to 49.5 points, which would indicate a reduction in activity. Back in April of this year, the PMI for the service sector in Italy was 50.4 points.

In France, the same indicator for the service sector in May of this year increased and amounted to 51.5 points, while it was projected at 51.7 points. Back in April, the PMI for the services sector in France was 50.5 points.

Germany continued to hold a leading position in the service sector. According to the report, the PMI Purchasing Managers Index for Germany was 55.4 points in May against 55.7 points in April. PMI for the services sector in Germany in May was projected at 55.0 points.

Given the good data, the overall PMI Purchasing Managers Index for the eurozone services sector rose to 52.9 points in May against 52.8 points in April of this year, although it was forecast at 52.5 points. The composite PMI of the eurozone rose to 51.8 points in May against 51.5 in April and the forecast of 51.6 points.

As I noted above, the disappointing report on inflation in the eurozone quickly pulled down quotes of the European currency against a number of world currencies. According to the data, the PPI producer price index in April of this year decreased by 0.3% compared with March and amounted to 2.6% per annum. The reduction was mainly due to low energy prices. Producer prices were expected to grow by 0.3% and 3.2%, respectively.

As for core inflation, which does not take into account volatile categories, including energy carriers, the situation is a little better. The report indicates that the producer price index of the eurozone excluding energy in April rose by 0.2% compared with March and by 1.2% per annum.

Weak inflation in the eurozone remains a headache for the European Central Bank, as even the current incentives do not allow it to reach the target level and gain a foothold near it. This situation, in turn, further delays the timing of raising interest rates in the eurozone.

Retail sales in the eurozone also failed to please traders. Despite the expectations of a reduction, weak sales will necessarily affect the growth rate of the eurozone economy in the 2nd quarter of this year, which is far from ideal.

According to the report, retail sales in the euro area in April this year decreased by 0.4% compared to March and increased by 1.5% compared to the same period in 2018. Economists had expected sales to decline by 0.5 percent.