EUR/USD Price Forecast: EUR lips Below $1.1740 as PMI Miss Revives Downside Risk
The Euros recent bounce ran out of steam in the European session, and the EUR/USD just kind of drifted back down to around $1.1710...
Quick overview
- The EUR/USD pair has drifted down to around $1.1710 after failing to maintain levels above $1.1740, following a downward revision of the Eurozone services PMI.
- The revised HCOB services PMI indicates slowing growth in the service sector, raising concerns about the Eurozone's economic momentum.
- US manufacturing data has been weak, limiting Dollar gains, while dovish comments from Fed officials suggest potential policy easing later this year.
- Technically, EUR/USD is in a downtrend, with key support levels at $1.1659 and a potential sell trade suggested near $1.1740.
The Euros recent bounce ran out of steam in the European session, and the EUR/USD just kind of drifted back down to around $1.1710, after failing to keep going above $1.1740. The pullback came after a downward revision to the Eurozone services PMI for December. This revision is only going to make people more worried about how fast the whole region is slowing down.
The HCOB services PMI was revised down to 52.4 – that’s from an initial 52.6 and November’s 53.1, which suggests the growth in the service sector is slowing down a bit. Now, its not like its going backwards or anything – its still in expansion territory – but its enough to be weighing on the Euro, particularly as investors get more interested in seeing signs of weaker demand.
Now attention shifts to Germany’s preliminary HICP data, where inflation is supposed to come back up 0.4% month on month after a -0.5% print last time around. However the yearly rate is forecast to ease to 2.2% from 2.6%, which could keep expectations of the ECB easing firmly in place.
US Data Offers A Bit of A Hiccup For The Dollar
On the US side, weak manufacturing data has kept a lid on Dollar gains, but not enough to actually push EUR/USD up. The ISM manufacturing PMI dropped to 47.9 which was below expectations, and marked the third month in a row that numbers have been going backwards. Even though new orders ticked up a bit, they still arent anywhere near growth territory.
Dovish comments from Fed officials, including that guy Neel Kashkari the Minneapolis Fed President, has only reinforced the idea that policy easing remains an option later this year. Still, with jobs data coming up later this week, traders arent taking strong positions – they’re holding fire until that one comes out.
EUR/USD Technical Outlook Gets A Bit More Risky
From a technical viewpoint, EUR/USD is trading near $1.1707 and is unfortunately sitting below a trendline that has been capping price all the way back in late December. Every time price gets close to $1.1740 it gets knocked back down with a bit of a long upper wick on the chart – which is more like a sign of selling pressure building up than people just consolidating.
The level of $1.1659 below the current price is where price has found support in the past , and is also a key horizontal base line. If that gets broken then we’d be looking at $1.1620, and then $1.1590 where there was earlier consolidation.
Structurally the pair is just compressing into a descending triangle, which often suggests its going to keep going the same way unless something dramatic happens to break the trend. RSI is below the midline which shows that on balance we are in a down trend, but its not over yet.
Trade idea: Sell EUR/USD when is gets near $1.1740, aiming for $1.1660, stop loss above $1.1780.
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