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EUR/USD Analysis Ahead of Crucial US, Eurozone PMI Data

EUR/USD Analysis Ahead of Crucial US, Eurozone PMI Data

Dimitri Zabelin, Analyst

EUR/USD Price Chart, Eurozone PMI, US PMI Data – Talking Points

  • US Dollar may rise vs Euro if EU, US PMI data stoke risk aversion and boosts demand for liquidity
  • APAC equities pointed higher with US stock futures along with Australian and New Zealand Dollars
  • EUR/USD may be in a compression zone as it trades between descending resistance and key support

ASIA-PACIFIC RECAP

US equity futures pointed higher at the start of the session along with the cycle-sensitive Australian and New Zealand Dollars while the anti-risk US Dollar and Japanese Yen fell. This reflected a market-wide “risk-on” tilt in investor mood as governments around the world collectively have pitched in over $2 trillion worth of stimulus to battle the virus. US President Donald Trump also announced the government is “fairly close” to deploying a stimulus package and that may have also contributed to the market’s rosy mood.

US DOLLAR MAY RISE VS EURO IF KEY PMI DATA KINDLES DEMAND FOR HAVEN-LINKED FX

The US Dollar may rise vs the Euro if preliminary regional PMI data for March for the Eurozone and United States underwhelm and amplify concerns about the prospect of a recession. Fear about the spread of the coronavirus has led to shutdowns like in Italy where industrial plants were ordered to lock down their operations for two weeks. Here is the breakdown for the upcoming PMI statistics:

Eurozone:

Markit Manufacturing PMI estimate: 39.0 prior: 49.2

Markit Services PMI estimate: 39.5 prior: 52.6

Markit Composite PMI estimate: 38.8 prior: 51.6

United States:

Markit Manufacturing PMI estimate: 43.5prior: 50.7

Markit Services PMI estimate: 42.0 prior: 49.4

Markit Composite PMI estimate: N/A prior: 49.6

While the estimates are significantly lower than the prior prints, the outlook given by policymakers is being reflected in these figures. Recently, St. Louis Fed President James Bullard warned that the unemployment rate in Q2 could skyrocket to as high as 30 percent with the possibility of a 50 percent hit to GDP. In the Eurozone, a slew of weak economic reports from key Eurozone economies has also painted a gloomy picture.

A weaker-than-expected reading may already be priced in by markets participants, but that does not suggest there is no room for volatility. Rather, higher-than-usual price oscillations may emerge as a result of data being reported significantly under the expected numbers and catching traders off-guard. The severity of volatility will likely therefore be in large part predicated on the degree of under or outperformance of the actual data.

In the event that the PMI data is worse than expected, traders may move their capital away from the Euro and to the US Dollar. In times of uncertainty, investors typically shift their priorities and start to favor assets with higher liquidity. In this regard, the Greenback reigns supreme as the world’s reserve currency.

EUR/USD OUTLOOK

As outlined in my prior piece, EUR/USD plunged below a key floor at 1.0783 and just recently bounced back from support at 1.0654. However, the pair’s upside gains may be capped by descending resistance (labelled as “Downtrend Beta”). Capitulation may be catalyzed by the upcoming data which may inspire liquidation, consequently raising the possibility of shattering the floor at 1.0654.

EUR/USD – Daily Chart

Chart showing EUR/USD

EUR/USD chart created using TradingView

EURO TRADING RESOURCES

--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitrion Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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