The EUR/USD currency pair has skyrocketed for an even rarer nine straight trading days. This remarkable rally is a demonstration of very strong bullish power. Since its mid-November lows the pair has climbed by close to 1.2%. Analysts are watching this currency pair like hawks as it approaches important technical resistance. Beyond that, they are trying to gauge the impact of future economic indicators coming down the pike, including most importantly, the US ISM Services PMI.
As the EUR/USD continues to ascend, it is met with increasing headwinds – including a major reverse trendline now set at 1.1605. Any further bearish response below this level may encourage sellers to re-test the low at 1.1590 made earlier this week. The currency pair’s low around the 1.1550 region offers an attractive target for further downside. To compound its significance, this level is in agreement with the lows set on November 26 and 28.
Technical Analysis of EUR/USD
The EUR/USD price spiked recently above the top of a descending channel. This channel has built up since those highs in early October, most notably hitting the 1.1605 level. This technical breakout is a reflection of the change in market sentiment, supported by increasingly positive bullish indicators. Further, the 4-Hour Moving Average Convergence Divergence (MACD) is rising above the zero line. This sustained upward movement is a precursor to significant bullish momentum.
A deeper dive shows that technical indicators for EUR/USD are still mostly bullish. Bulls must contend with chart and psychological resistance in the 1.1660-1.1670 area. This region stopped public gatherings in late October and mid-November. If price action is able to confirm a break above 1.1670, it may pave the way for a retest of the October 17 high. That peak is just above 1.1730.
Market participants are still on edge as they wait for Friday’s US ISM Services PMI report. This key economic indicator is poised to be the first to reflect a major slowdown in business activity for the month of November. This has major implications for the USD and by extension, the EUR/USD currency pair.
Implications of the US ISM Services PMI
The US ISM Services PMI is one of the most important indicators of economic activity for the services sector. A print above 50 indicates expansion which is usually supportive of the USD. If the PMI comes in strong, that could drive EUR/USD lower. A surprise downside in the print might strengthen the common currency versus greenback.
The full report will include detailed information about business activity. It will give us clues on inflationary pressures, where we’ll see the Prices Paid Index has recently fallen to 65.4 from 70.0 as little as two months ago. This decline is indicative of easing inflation pressures, a increasingly key influence that could weigh on USD strength and lend support to EUR/USD.
The Employment Index included in the ISM Services PMI has made marginal improvement too, increasing to 48.9 from 48.2. The figure below indicates that recruitment conditions continue to remain in contractionary territory. The upward movement may indicate a slow but steady labor market rebound.
Market Sentiment and Future Outlook
While traders continue to showcase these underlying developments, the broader market sentiment remains cautiously optimistic considering the longer-term EUR/USD outlook. Today’s rallying action may narrow the bearish focus and draw in additional dip-buying interest if the bullish momentum persists. Nonetheless, any such bearish reaction beneath key levels will be watched closely.
Even more than usual, technical analysis and fundamental economic data will feed into each other. Collectively, they will have a massive bearing on EUR/USD’s future trajectory. If bearish sentiment does weigh in on confirmation below 1.1605 then traders will likely look for continued downside toward key support levels like.