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EUR/USD Short Term View Ahead of Euro-Zone Markit PMIs

EUR/USD Short Term View Ahead of Euro-Zone Markit PMIs

2016-08-23 05:12:00
Oded Shimoni, Junior Currency Analyst
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Talking Points:

- EUR/USD trading above 1.13 after finding support below the level yesterday

- Euro-Zone PMIs are in focus for the hours ahead

- Yellen speech on Friday could be the main event risk on the docket

The EUR/USD is edging higher after finding support below the 1.13 figure yesterday, as the pair's post-Brexit recovery continues.

Brexit seems likely to be in focus again today as we look ahead for Euro-Zone Markit PMIs for possible Brexit influences.

Against this backdrop we will form our outlook and look to find short term trading opportunities using different tools such as the Grid Sight Index (GSI) indicator.

EUR/USD Short Term View Ahead of Euro-Zone Markit PMIs

Click Here for the DailyFX Calendar

Euro-Zone August Markit PMIs are set to hit the wires 08:00 GMT.

The figures will follow the France and Germany numbers and could indicate how the Euro-Zone economy is faring in the initial Brexit aftermath.

Expectations are for manufacturing to remain unchanged at 52.0, services to slightly down tick to 52.8 from the prior 52.9 for an overall easing in the composite to 53.1 from the prior 53.2.

In the last report, the Markit Eurozone PMI Composite Index marked an 18-month low, but it was better than expectations, showing resilience in the face of the UK’s vote to leave the EU.

In their latest policy meeting the ECB kept policy at status quo as it appears Brexit spillover effects are contained for the economy at the moment. This seems to have allowed the ECB to remain on hold for now.

Signs of deteriorating outlook might suggest that the ECB’s “cautious optimism” was perhaps premature and could send the euro lower, while continued resilience might keep the currency bid.

With that said, we may need to see a significant deviation from expectations for the market to really move on the numbers as the Yellen speech Friday seems to take center stage this week, and Fed speculation continues to drive the pair.

Indeed, the Euro does appear driver-less at the moment, possibly implying that directional conviction for the pair could be found on the ebbs and flows on Fed rates speculation.

We’ll be covering the PMI figures release LIVE here.

EUR/USD Technical Levels:

EUR/USD Short Term View Ahead of Euro-Zone Markit PMIs

Click here for the DailyFX Support & Resistance tool

We use volatility measures as a way to better fit our strategy to market conditions. The Euro is expected to be the least volatile currency versus the US Dollar (based on 1-week and 1-month implied volatility measures).

Indeed, 20-day ATR reading are indicating subdued levels of volatility.

In turn, this may suggest that range bound trading plays might be appropriate in the short term.

EUR/USD 30-Min Chart (With the GSI Indicator): August 23, 2016

EUR/USD Short Term View Ahead of Euro-Zone Markit PMIs

(Click to Enlarge)

The EUR/USD is approaching potential resistance at the 1.1350 level at the time of writing, with GSI calculating slightly higher percentage of past movement to the downside in the short term.

The GSI indicator above calculates the distribution of past event outcomes given certain momentum patterns. By matching events in the past, GSI describes how often the price moved in a certain direction.

You can learn more about the GSI here.

Further levels of resistance might be 1.1379, 1.1400 and 1.1430 which is around the pre-Brexit high (June 24) and proved significant in the past as well.

Possible levels of support may be 1.13, 1.1250 and a general area packed with potential support below 1.1220.

We generally want to see GSI with the historical patterns significantly shifted in one direction, which alongside a pre-determined bias and other technical tools could provide a solid trading idea that offer a proper way to define risk.

We studied over 43 million real trades and found that traders who successfully define risk were three times more likely to turn a profit.

Read more on the Traits of Successful Traders” research.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 29.6% of traders are long the EUR/USD at the time of writing. This is an extreme SSI reading, as retail traders are apparently trying to fade the move higher.

You can find more info about the DailyFX SSI indicator here

--- Written by Oded Shimoni, Junior Currency Analyst for DailyFX.com

To contact Oded Shimoni, e-mail oshimoni@dailyfx.com

Follow him on Twitter at @OdedShimoni

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

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