EUR/USD has been surprisingly resilient in recent trading sessions, trading in a nice down channel but reacting to important economic data points like a coiled spring. The pair has recently retraced losses following the release of optimistic business activity figures from the Eurozone, particularly in the services sector. Despite this positive momentum, all throughout these rallies, the sellers have been getting active. Traders are looking ahead to a highly consequential US Consumer Price Index (CPI) report. At the same time, the EUR/USD remains remarkably calm on the daily chart.
S&P Global publishes the Services PMI. This index is the most important measure of economic activity in the Eurozone’s vast services sector. The surprise services expansion reflected in the latest figures should be seen as positive and potentially supportive of the Euro (EUR). This news comes at a time when the US Dollar (USD) is being challenged on numerous fronts. It is staying rangebound still, though on course for a modest weekly advance amid a tepid risk appetite buffeted by fresh trade woes.
Business Activity Indicators Show Positive Signs
The Eurozone HCOB Manufacturing PMI ticked up, rising to 50.0 from 49.8 in September. This month’s reading is a long-desired barrier that means manufacturing activity has leveled out. Any reading above 50 means expansion. By contrast, the HCOB Services PMI saw a much stronger gain, upping to 52.6 from 51.3. This notable uptick underscores the growing strength of the services sector, which is essential for the overall health of the Eurozone economy.
The increase across all of these PMIs is a positive indicator for firms doing business across the Eurozone. As with all the PMI indexes, a reading above 50 in the services sector signals expansion. This upward trend is a tailwind for the Euro’s short-term fortunes and might help inform the outlook for future ECB monetary policy. As a result, investors are watching these leading indicators like hawks to gain a better understanding of the region’s economic path forward.
In spite of these admirable strides, the EUR/USD still experiences a tsunami of selling pressure when the trend tries to rally. Traders recognize that a successful breach of the 1.1620 level could shift focus toward the October 21 high around 1.1650. The present technical landscape still heavily favors bears. They may be powerful indeed, particularly if the pair fails to hold above key support levels.
EUR/USD Trading Dynamics and Market Sentiment
So far today, EUR/USD is at 1.1615 which is only a couple points above flat on the day’s EUR/USD daily chart. The duo has largely retreated within its recent $3-4 trading range. Bears will be waiting to revalidate their shorts under the 1.1580 support level. If that were to happen, it would open the door to retesting recent lows made in early October.
Market sentiment is still very cautious, more so by external economic indicators and changes to trade relations. The US Dollar is coursing through recent ranges, for the most part helping the currency to a modest weekly gain. New trade woes have soured risk appetite. With the market entering a wait-and-see mode, traders are closely awaiting the next major economic data release.
EUR/USD is back down 0.06% against its major peers as shown on the heat map revealing % changes. The small drop in value underscored the Euro’s weakness. Despite the wonderful things it enables, it is under attack from both inside the country and abroad. Speculators are keenly focused on the pair’s likely direction and equally the next impactful economic report that can help provide further guidance.
Technical Analysis and Future Outlook
Technical indicators on the EUR/USD 4-hour chart support a bearish momentum bias. The 14-day Relative Strength Index (RSI) has been a constant battle to reclaim the ever so important mid-range 50 level. This would suggest that short-term momentum is shifting against sellers. A reading under 50 generally indicates a contraction in business activity for non-farm service providers. This trend can be interpreted as a bearish signal for the Euro.
Considering these technical conditions and fundamentals, traders are set up to be careful with their approach to EUR/USD. If such bearish sentiment persists, a retest of important lower support levels could be on deck. If price can sustain above 1.1620, buyers will likely return with extreme prejudice. Such a shift would be enough to bring sentiment firmly back on the side of the Euro.