Market Overview

2 June 2021

A Win-Win Situation for the US-Europe Competition

The EUR/USD sideway movements in a rather tight price range seem to have become a zero-sum game. But that is not the case, as both of the two major markets are still deriving benefits and capitalising on their mutual competition. 

The manufacturing purchasing managers index (PMI) for the Eurozone, which is an important indicator of the Old World's business activity, came out at 63.1 points yesterday. This is only two-tenths of a point below the April's record preliminary estimate for April, which was later lowered to a value of 62.9 points after the follow-up revision. However, the figures for May are now final, and so the data on the recovery pace of the industrial sector broke the previous peak of the decade and also for the whole period of PMI observations. Its own absolute record for this indicator was also set in Italy at 62.3 points, while a 64.4 PMI value for Germany was inferior to the "Biblical" 66.6 for March but still very high. 

Among the largest European economies, only industrial PMIs in France and Spain failed to pass the 60.0 points landmark again. Nevertheless, the overall take-away from those PMI releases was so favourable that the Euro Stoxx 50 composite stock index quickly soared to its all-time record within the area of 4,100 points. Even the French CAC 40 followed the good example performing a similar feat to clear the next height above 6,500 points. 

The market situation as it has developed led EUR/USD to 1.2240 first and then above 1.2250 even despite the best possible reply from another side of the Atlantic. A similar manufacturing PMI by Markit was released there at 62.1 level, which is the U.S. national record for the last several years too. And, a similar output was obtained for the U.S. Institute of Supply Management (ISM) manufacturing index but it included some weaker employment component at 50.9 points only with a solid compensation by new orders component at 67.0 points. As a result, the American S&P 500 broad market index spiked but slightly missed the previous record values, although it was very close to the all-time peaks, and then it moved one step back to the habitual area of 4200 points. And "the best is the enemy of the good" principle rocked the currency swing to lead EUR/USD just to 1.2110 before yesterday's close and below 1.2170 today for now. 

It's not exactly a big mess for the Forex market but some volatile distortion of the idyllic upside rally for the single currency may occur. Regardless of the right name of the market process, it is clearly caused by a competition between the U.S. and European economy for the financial inflows. Some investors prefer to still choose undervalued European stock assets, as Europe seems to have just revved into gear after long-lasted lockdowns. But others continue to bet on the already much stronger U.S. market, even despite the temporary shortcomings of the labour market. The Non-Farm Payrolls report from the United States, which is going to be released on Friday, and before that, the PMI business activity data in the service sectors of both continents on Thursday, will probably significantly contribute to this investment tug-of-war and, therefore, the currency and stock market volatility before the end of this week. 

Remarkably higher yields of the U.S. Treasury bonds, which are not jumping any more for now, but are still at 1.6% per annum against negative yields on German bonds or near-zero positive yields on French or Belgian bonds, may also be part of the game. The safe bond market is not too much in demand now when stock markets deliver a super growth and may continue to support even more profits in the nearest summer months after the very positive close of May. And it's difficult to imagine the U.S. Dollar as a traditional safe-haven currency in a role of market favourite until the stock indexes will reach some intermediary height to convert the upside movement into a flat form of correction, at least. But bonds continue to attract some part of capital anyway, and the holders may choose a geographic preference for their money on a day-to-day basis. 

Meanwhile, a tug-of-war between the U.S. and the European stock markets and economics is obviously not a zero-sum game, but a strong win-win cut of cards, as the money inflows alternately operate by rotation for the final benefits of both markets. The growth of indexes on one side creates investment jealousy and naturally pushes competitive flow of greedy money to the other side, with a motivation of just not to miss another round of investment opportunities. Nevertheless, the process also works for the sake of both American and European recovery to the pre-crisis levels of consumption and welfare.



Analysis and opinions provided herein are intended solely for informational and educational purposes and don't represent a recommendation or investment advice by TeleTrade.

Open Demo Account
I understand and accept the Privacy Policy and agree that my name and contact details can be used by TeleTrade to contact me about the information I have selected.
23 International Awards
Have a question?

We are ready to assist you in every step of your trading experience
by providing 24/5 multilingual customer support.

Follow us

Risk Warning: Trading Forex and CFDs on margin carries a high level of risk and may not be suitable for all investors. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.42% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Prior to trading, you should take into consideration your level of experience and financial situation. TeleTrade strives to provide you with all the necessary information and protective measures, but, if the risks seem still unclear to you, please seek independent advice.

© 2011-2021 Teletrade-DJ International Consulting Ltd

Teletrade-DJ International Consulting Ltd is registered as a Cyprus Investment Firm (CIF) under registration number HE272810 and is licensed by the Cyprus Securities and Exchange Commission (CySEC) under license number 158/11.

The company operates in accordance with Markets in Financial Instruments Directive (MiFID).

The content on this website is for information purposes only. All the services and information provided have been obtained from sources deemed to be reliable. Telerade-DJ International Consulting Ltd ("TeleTrade") and/or any third-party information providers provide the services and information without warranty of any kind. By using this information and services you agree that under no circumstances shall TeleTrade have any liability to any person or entity for any loss or damage in whole or part caused by reliance on such information and services.

TeleTrade cooperates exclusively with regulated financial institutions for the safekeeping of clients' funds. Please see the entire list of banks and payment service providers entrusted with the handling of clients' funds.

Please read our full Terms of Use.

To maximise our visitors' browsing experience, TeleTrade uses cookies in our web services. By continuing to browse this site you agree to our use of cookies.

Telerade-DJ International Consulting Ltd currently provides its services on a cross-border basis, within EEA states (except Belgium) under the MiFID passporting regime, and in selected 3rd countries. TeleTrade does not provide its services to residents or nationals of the USA.

Material posted here is solely for information purposes and reliance on this may lead to losses. Past performances are not a reliable indicator of future results. Please read our full disclaimer.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.42% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.