EUR/USD Bulls Need Upbeat Manufacturing PMIs to Target $1.0950

Highlights

• The EUR/USD found support this morning, gaining 0.07% to $1.09175.
• Manufacturing sector PMIs for Spain and Italy and finalized numbers for France, Germany, and the Eurozone will provide early direction.
• However, US ISM Manufacturing PMI numbers and Fed chatter would likely have more influence.

It is another busy day ahead for the EUR/USD. The manufacturing sector is in the spotlight today. PMIs from Spain and Italy and finalized numbers for France, Germany, and the Eurozone will draw interest.

However, we expect the PMIs for Italy and the Eurozone to have more influence, barring a revision to the German PMI.

While the headline PMIs will provide direction, investors should consider the sub-components. We expect employment, new orders, input costs, and factory gate prices to influence.

With the private sector in the spotlight, investors should monitor ECB chatter throughout the day. However, no ECB Executive Board members are on the calendar to speak today, leaving commentary with the media to move the dial.

Earlier today, private sector PMI numbers from China set the tone.

In June, the Caixin Manufacturing PMI fell from 50.9 to 50.5 versus a forecasted 50.2. While weak overseas demand was a drag, investors responded favorably to the better-than-expected headline PMI number. The latest PMI reading supports the hope of further PBoC support to boost economic activity.

The US Session

It is a relatively busy day on the US economic calendar, and we expect the US economic indicators to have more influence. The ISM Manufacturing PMI will draw plenty of interest later today. Investors should consider employment, inflation, and new order sub-components.

Softer-than-expected inflation numbers on Friday failed to curtail bets on a Fed 25-basis point interest rate hike this month nor another move in September. Weak PMI numbers could impact sentiment toward a post-summer rate hike.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 87.4% versus 71.9% one week earlier. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 21.5%, up from 11.5% one week earlier.

EUR/USD Price Action

This morning, the EUR/USD was up 0.07% to $1.09175. A mixed start to the day saw the EUR/USD fall to an early low of $1.09003 before rising to a high of $1.09183.

Daily Chart

The Daily Chart showed a EUR/USD breakthrough the $1.09 psychological resistance level as the markets responded to US inflation numbers. Looking at the EMAs, the EUR/USD sat above the 50-day ($1.08564) and 200-day ($1.07198) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continued to pull away from the 200-day EMA and reflected bullish momentum.

Looking at the 14-Daily RSI, the 54.77 reading signaled a moderately bullish trend, aligned with the 50-day and 200-day EMAs. Avoiding sub-$1.09 would support a move through the lower level ($1.09385) of the $1.09385 – $1.09525 resistance band to target the upper level ($1.09525).

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD faces strong resistance at the $1.10 psychological level. After a bullish end to last week, the EUR/USD sits above the 50-day ($1.09039) and 200-day ($1.08624) EMAs, sending bullish signals. Significantly, the 50-day EMA pulled away from the 200-day EMA, signaling another run at the resistance range of $1.09385 – $1.09525.

The EUR/USD needs to hold above the 50-day EMAs to target last week’s high of $1.09766 (Tues).

The 14-4H RSI reading of 53.20 indicates a moderately bullish stance, with buying pressure outweighing selling pressure. The upward trend aligns the RSI with the EMAs and signals a run at the lower level ($1.09385) of the current resistance range of $1.09385 – $1.09525.

Daily Resistance & Support Levels