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Talking Points:

- The final May PMI readings for the Eurozone (and the individual countries) proved to be overall disappointing for the Euro.

- However, out-performance by the May UK Composite and Services PMIs has lifted the British Pound on Tuesday.

- Sentiment for the US Dollar remains mixed following a volatile few days.

For longer-term technical and fundamental analysis, and to view DailyFX analysts’ top trading ideas for 2018, check out the DailyFX Trading Guides page.

The US Dollar (via the DXY Index) staged a late-day recovery yesterday to form a hammer on the daily candle, and is following up that price action with a bullish inside bar day today. However, none of the gains seen by the DXY Index can truly be attributed to the US Dollar itself, as price action overnight has been motivated by developments abroad.

Notably, on the data front, a mixed batch of European PMI figures has led to divergent outcomes for the British Pound and the Euro.

For the former, the May UK Composite and Services PMIs both came in above expectations, adding further credence to the notion that Q1'18 UK GDP was weighed down by inclement weather, and that Q2'18 UK GDP should be better. For the latter, the May Eurozone Composite PMI closed at an 18-month low, suggesting that the slowdown in growth momentum since the start of the year has persisted.

Elsewhere, a slight pullback in US Treasury yields has allowed the Japanese Yen to recover some ground versus the US Dollar, although with the US S&P 500 breaking through its May highs, risk appetite remains well-supported; USD/JPY is only slightly lower on the day.

On balance, losses by the Euro have more than offset gains by the British Pound and Japanese Yen, allowing the DXY Index to rally. Meanwhile, a stronger DXY Index on the day coupled with higher US stocks in the pre-market have proved another difficult trading environment for Gold, which at the time of writing was working on its fourth consecutive day lower.

See the above video for technical considerations in the DXY Index, EUR/USD, GBP/USD, USD/JPY, EUR/GBP, the S&P 500, and Gold.

Read more: Euro Forecast: Euro May Have Room for Further Recovery in Short-term


Whether you are a new or experienced trader, DailyFX has multiple resources available to help you: an indicator for monitoring trader sentiment; quarterly trading forecasts; analytical and educational webinars held daily; trading guides to help you improve trading performance, and even one for those who are new to FX trading.

--- Written by Christopher Vecchio, CFA, Senior Currency Strategist

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