EUR/USD Daily Forecast – Euro Bounces After Hitting a Three-Week LowEUR/USD broke lower yesterday after posting a double top. The pair now threatens a breakdown from a broader double top pattern.
Euro Catches a Bid on Positive PMI Data
Services PMI data out of Europe has mostly come in ahead of expectations, underpinning EUR/USD. All of the economies that reported today held in expansion and three out of five of the reports exceeded analyst expectations.
Yesterday, the US non-manufacturing PMI came in stronger than expected, triggering broad-based strength in the greenback. This follows Friday’s jobs report which was also stronger than expected.
EUR/USD is showing an interesting pattern. The pair was on the verge of breaking lower from a double top pattern at the European open yesterday after failing to break above 1.1175 twice over the past week.
The exchange rate broke lower and surpassed the measured move objective of 1.1080. It is now showing a similar pattern that has formed since October 21. The measured move objective for the broader pattern falls at 1.0966.
But the pair is firmly bid in early European data on the back of the mentioned PMI data. The reaction once US traders arrive at their desk later in the day will be important. Data-wise, the economic calendar is light. The markets will tend to focus on ongoing developments in the trade war. Also, shifts in risk sentiment stand to impact the dollar as the rally in equities around the world started to lose some momentum after the S&P 500 futures closed slightly lower on Tuesday.
EUR/USD is headed higher and support at 1.1072 is being respected. This is a fairly important level as it held the pair higher in late July and August and then lower in September.
What I’m looking at, and what I think is more important, is yesterday’s break below 1.1129. The fact that the pair broke below the level shows weakness. Especially since the 100-day moving average falls near it.
Because of this, I would not rule out further downside in the pair. At the same time, I don’t think it makes sense to get aggressively bearish the pair because of the strong performance in October. After all, this led to a bullish engulfing candle on a monthly chart that wiped out two prior months of gains.
- EUR/USD is catching a bid after testing major support.
- The pair is underpinned by better than expected PMI data out of Europe.
- Yesterday’s drop below the 100-day moving average signals weakness. I expect rallies will be sold in the pair, especially if the pair were to restest of the moving average.