EUR/USD Violates Upward Channel – A Quick Sell Signal!
Arslan Butt • 3 min read
The EUR/USD pair closed at 1.20446, after placing a high of 1.21009, and a low of 1.20274. The EUR/USD pair extended its losses for the second consecutive session on Monday, falling below the 1.2100 level, despite the risk-on market sentiment. In spite of the stronger-than-expected economic data from the Euro side, the EUR/USD pair still posted losses on Monday, due to the increased strength of the US dollar.
The US economic outlook improved after the US FDA approved a third coronavirus vaccine on Saturday. The vaccine, developed by Johnson & Johnson, was granted approval for emergency use, raising the hopes of quick economic recovery. Administration of this vaccine will begin on Tuesday, and hopefully, it will contribute to the fight against the coronavirus, ultimately helping the American economy to reopen sooner. This hope has resulted in an improvement in the general outlook for the country, raising the demand for the US dollar and ultimately dragging the EUR/USD prices to the downside.
On the data front, from the European side, the German Prelim CPI for February rose to 0.7%, against the expected 0.5%, supporting the Euro and capping any further losses in the EUR/USD pair. At 13:15 GMT, the Spanish Manufacturing PMI came in, showing an increase to 52.9, against the expected 52.1, which also boosted the Euro and limited the downward pressure on the EUR/USD pair. At 13:45 GMT, the Italian Manufacturing PMI came in. It was in line with the expectations of 56.9. At 13:50 GMT, the French Final Manufacturing PMI was announced. It increased to 56.1, against the expected 55.0, boosting the Euro and capping any further losses in the EUR/USD pair. The German Final Manufacturing PMI, which was released at 13:55 GMT, remained flat at 60.7. At 14:00 GMT, the Final Manufacturing PMI from the whole Eurozone came in. It was in line with the expectations of 57.7. The Italian Prelim CPI for February, which came in at 15:00 GMT, dropped to 0.1%, against the expected 0.4%, weighing on the Euro and putting further pressure on the EUR/USD pair.
From the US side, at 19:45 GMT, the Final Manufacturing PMI for February was released. It remained flat, in line with the forecast of 58.6. At 20:00 GMT, the ISM Manufacturing PMI for February came in, indicating a surge to 60.8, against the projected 58.7, which supported the US dollar, and increased the losses for the EUR/USD pair. In January, the Construction Spending also surged to 1.7%, against the expected 0.7%, which boosted the US dollar and added more losses for the EUR/USD pair. In February, the ISM Manufacturing Prices surged to 86.0, against the expected 80.0, supporting the greenback and weighing on the EUR/USD pair.
The US dollar was also strong because of the better-than-expected macroeconomic data from the US on Monday. On the other hand, on Monday, European Central Bank President Christine Lagarde called the coronavirus a double economic shock. It has hit the economy extremely hard and has accelerated structural changes that will transform the economies and lifestyles of the future. She also noted that the pandemic was still weighing heavily on economies and that it was not over yet, but she acknowledged that tremendous progress had been made on vaccine technology, which has enabled us to see the light at the end of the tunnel. These comments by Lagarde did not impact the currency. Thus, the EUR/USD pair remained on a bearish track, posting losses for the day. Meanwhile, the losses in the EUR/USD currency pair remained limited, due to some weakness in the US dollar, driven by the latest move by the US House of Representatives, in passing the $ 1.9 trillion stimulus package. This proved unhealthy for the US dollar and capped any further losses in the EUR/USD pair.
Pivot Point: 1.2084The market is bearish, but it is trading at a significant reversal/support level. I expect the zone between 1.1950 and 1.1980 to hold in the short run. In the long run, we can expect the market to consolidate at the level between 1.20 and 1.22. For now, let’s capture a sell trade below 1.2084, for a quick 40 pips. Good luck!
About the author
Arslan Butt is our Lead Commodities and Indices Analyst. Arslan is a professional market analyst and day trader. He holds an MBA in Behavioral Finance and is working towards his Ph.D. Before joining FX Leaders Arslan served as a senior analyst in a major brokerage firm. Arslan is also an experienced instructor and public speaker.