Euro area April flash PMIs are due ahead of the next European Central Bank meeting. Manufacturing PMI is expected to fall from 51.6 to 49.6, while Services PMI is expected to stay at 50.2.
The expected manufacturing drop is linked to higher energy prices. March’s rise in the headline index was largely tied to longer delivery times, which could again affect the headline reading in April.
Uncertainty around the PMI measures is described as unusually high, so readings may be harder to interpret than normal. Price components and the output sub-component are set to be watched closely.
Markets started the session weaker amid news about a stand-off over the Strait of Hormuz. Asian equities fell, US Treasuries rose by a couple of basis points, and EUR/USD moved back below 1.1700.
We remember this time last year, in April 2025, when significant concerns over energy prices were expected to push the manufacturing PMI into contraction territory. The market was also digesting geopolitical risk from the Strait of Hormuz, which sent the EUR/USD pair sliding below 1.1700. This created a clear playbook for trading Euro weakness.
Now, looking at the fresh April 2026 flash PMI data, we see a familiar pattern of industrial weakness, with the manufacturing index coming in at 49.9, still just below the crucial 50 mark. However, the services sector is showing more resilience this time around, posting a reading of 52.1 and suggesting a continued divergence in the Eurozone economy. This two-speed reality complicates the outlook for the European Central Bank.
The ECB is caught between this sluggish manufacturing output and core inflation that remains sticky, with the latest reading for March 2026 holding at 2.9%. This makes a near-term interest rate cut less certain and increases the importance of the ECB’s forward guidance in the coming weeks. We believe this uncertainty will keep a lid on any significant Euro strength.
Given the EUR/USD is currently hovering around 1.0720, a full ten cents lower than this time in 2025, bearish strategies remain attractive. Traders should consider buying puts or establishing put spreads on the EUR/USD, targeting moves lower on any signs that the ECB is prioritizing growth over its inflation fight. The persistent manufacturing weakness provides a strong fundamental reason for this view.
Volatility in European energy markets, specifically natural gas prices, continues to be a major factor weighing on industrial sentiment. While prices are off their highs, they remain structurally elevated, recently trading around €35 per MWh on the TTF hub. This sustained pressure on manufacturing suggests that options protecting against further Euro declines or a spike in market volatility are prudent hedges.
