Euro Strengthens on PMIs, EUR/USD, EUR/GBP Levels to Watch
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Key Talking Points:
EURO BOOSTED ON BETTER THAN EXPECTED PMI DATA
Despite the euro not needing an extra push to consolidate its upward trajectory, the release of PMI figures this morning helped the European currency garnish further bullish momentum needed to clear some hurdles. First came French and German data, both seeing a significant boost in the services sector after both countries have recently come out of strict lockdowns during the month of November. That said, the health crisis seems to be getting worse before it gets better, and these optimistic readings could easily fade away if social restriction measures remain much longer. The overall figure for Eurozone was again much better than expected both in services and manufacturing, keeping momentum going in the euro. Despite the December data being better than expected, all three readings continue to be in the contraction area for services.
EUR/USD, EUR/GBP LEVELS TO WATCH
EUR/USD: continued upside pressure in the pair as it surpassed the 1.2150 level. Downside support remains in the rising trendline from connecting the higher lows since November 4th, now at 1.2115. A break below this level opens the door for a retracement towards 1.20. On the upside, the pair has pushed above 1.2177 (last week’s high) managing to break 1.22 for the first time since April 2018, but it is likely to face some challenge to hold above this level. As we approach the Federal Reserve meeting this afternoon, we could see the pair pull back slightly ahead of the meeting and this could lead to a “buy the dips” scenario.
EUR/GBP: the pair continues to be highly volatile on the back of continue Brexit headlines as we near the deadline for a trade deal. The path of least resistance seems to be firmly lower at this moment, after reaching a 3-month high on Friday on the back of a failed meeting between Boris Johnson and Ursula von der Leyen. Commitment from both sides to continue talks has seen the pair head firmly towards the 0.90 line, where the 50-day SMA is starting to converge below the 200-day SMA, a sign that further weakness can be expected. The upside is capped at the 23.6% Fibonacci (0.9223) whilst an increase of selling pressure is expected around the 0.91 line. To the downside, a break below 0.8983 will open the door for further weakness towards the unbreakable support since May 15th at 0.8863.
EUR/GBP Daily chart
--- Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin
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