The euro made a marginal new high in early Asia, but participants rightly drew cautious ahead of the flash eurozone PMI.  The flash PMI was softer than expected, and although the composite fell to six monthly lows, it is more a reflection of how steady it has been at elevated levels. At the same time, it is consistent with one of our contentions; namely that the economic momentum that was so apparent in the first half is no longer accelerating.  

The euro was sold for half a cent before finding a solid bid near $1.1630. The pre-weekend low was about $1.1620. Recall that initially in response to the ECB meeting, the euro initially fell to $1.1480 on July 20 before recovering smartly to almost $1.1680. To keep today’s pullback in perspective, note that it managed to simply push the euro back below the upper Bollinger Band (~$1.1650). 

The eurozone composite flash PMI eased to 55.8 from 56.3. Economists expected a softer number, but the slippage was more than expected. It was a function of the manufacturing sector. The manufacturing PMI eased to 56.8 from 57.4, while the services were unchanged at 55.4. Of note on the aggregate level, manufacturing costs appear to have begun slowing, while new orders and employment remains firm.  

In Germany, both service and manufacturing readings fell and by more than expected. The manufacturing PMI slipped to 58.3 from 59.6, while the services PMI eased to 53.5 from 54.0. The composite PMI fell to 55.1 from 56.4, which is the lowest since January. The manufacturing reading is three-month low.    

French manufacturing fared better than in Germany, rising to 55.4 from 54.8.  This is a new six-year high. Services disappointed, at 55.9 from 56.9. That puts the composite at 55.7, which is also a six-month low. The composite in June stood at 56.6.  

Earlier, Japan reported that its preliminary manufacturing PMI also ticked down in July to 52.2 from 52.4. Nevertheless, the yen remains firm. It is extending its gains against the dollar for the fifth consecutive session.In Asia, the dollar was sold through the JPY111 area, which corresponds to 1 61.8% retracement of the dollar’s gains since the Fed hiked last month. European dealers took the dollar to almost JPY110.60. Only a move now above JPY111.20 would deter the market from pushing the dollar closer to JPY110, where a more important psychological test would be in store.