Euro, EUR/USD Analysis
- EZ PMI’s lead to pullback in euro upside.
- Focus now shifts towards US ISM non-manufacturing data and Fed speakers.
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
PMI Data Misses Estimates but Positive Outlook Remains
PMI data from Europe’ largest economies came in lower than anticipated for the month of February but continues the upward trend, largely improving on the January figures. Fundamental data and economic sentiment suggest that the European economy is far from the worst case scenario it had envisioned in the event gas supplies had not been secured ahead of the winter, forcing a continental gas crisis. The composite data for the Euro area witnessed a noticeable improvement, rising to 52 from 50.3 in January, despite missing the estimated number of 53. The rising data suggests a general expansion in Europe, but certainly does not point to an economic boon.
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Q4 GDP data from Germany, Europe’s largest economy and manufacturing powerhouse, revealed an economic contraction in the three months ending in December compared to Q3. Nevertheless, European equities remain rather robust, trading near record highs and receiving renewed impetus from positive Chinese manufacturing data on Wednesday which has broadly seen improvements in risk appetite and a rise in global equity indices.
EUR/USD Daily Chart
Source: TradingView, prepared by Richard Snow
The daily EUR/USD chart above shows the turnaround in favor of the USD since early European trading with the EUR marginally in the green. Prices have been steadily flirting with the 1.0615 zone of confluence with the recent uptick resembling a bear flag type chart pattern. This could point to additional dollar strength but the pair is highly dependent on fundamental data at this point. Looking at the Relative Strength Index (RSI), momentum continues to indulge bears, opening up the 1.0500 psychological support handle.
Risk Events to Round up The Week
ECB officials continue to advance the likelihood of further rate hikes after the March meeting, particularly after yesterday’s EU core inflation continues to rise. Widespread price pressures throughout the area are yet to reveal the effectiveness of monetary tightening, providing ECB officials with greater license to talk up more hikes. Current market expectations suggest two more 50 bps hikes followed by two 25 basis point hikes to bring the terminal rate to 4% by September.
The main piece of event risk this week is undoubtedly the US ISM services data. December had markets worried of a recession as the data point dropped into contractionary territory only to see a massive turnaround in the January.
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
