Bull and bear statue in front of the stock exchange in Frankfurt am Main, Germany. Image source: Christian Mueller © 123RF.com
The overall industrial activity in the Eurozone fell in August even with the ongoing process of gradual easing of governmental restrictions in many countries.
The two largest economies in the Euro Area – France and Germany – registered worse-than-expected services and manufacturing performances, which underscores ECB's fears for a protracted and uneven recovery over the next quarters.
The French Services and Manufacturing PMIs missed the consensus forecasts markedly by 4.4 and 4 index points, respectively. Meanwhile, German manufacturing managed to exceed the initial market expectations by 0.8 index points, which is the only positive outcome from the report.
By far and large, however, the biggest industrial disappointment was also recorded in Germany. The Services PMI contracted by 4.8 index points from a month prior and missed the consensus forecasts by a margin of 4.5 index points.
Germany Services PMI. Image source: TradingEconomics.com
The slump in German services represents a major point of concern for European policymakers and investors because this industrial sector occupies the largest portion of Germany's overall economy.
German growth depends vastly on the robust performance of the services industry, which continues to be reeling from the coronavirus fallout.
That is why the downbeat performance of the German Services PMI, which could be partially explained away by the effect of summer seasonality, had an immediate spillover effect on the euro.
The single currency fell by as much as 0.60 per cent against most other majors following the publication of Markit's report, which, in particular, catalysed the anticipated correction on the EURJPY pair.
As can be seen on the 4H chart below, the immediate market reaction to the news exacerbated the underlying bearish pressures already affecting the EURJPY, and the pair continued developing its latest 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory.
Nevertheless, the broader market sentiment continues to be ostensibly bullish, which is confirmed by the Ichimoku Cloud indicator.
The downswing could fall as low as the 23.6 per cent Fibonacci retracement level at 123.924 before the bearish pressures in the short-term are exhausted, and the price action resumes heading further north.
As was argued in yesterday's analysis of the pair, the market is currently in the process of establishing a broader bullish trend, which is why today's data is unlikely to reverse this.
EURJPY 4H Price Chart. Image source: Trendsharks ©, created with TradingView.com
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