EUR/USD Daily Forecast – Euro Extends Losses on Weak PMI Figures and ECB QE Concerns

Survey data from purchasing managers in the services industry indicated a further drop in the eurozone private sector economy as the Coronavirus continues to wreak havoc.

Individual PMI readings for eurozone countries all fell below 20 with the Spanish index declining the most to 7.1.

The final services PMI for Germany came in at 16.2 which was higher than its counterparts. Ahead of the virus escalation the index consistently held above 50, which is an indication of growth, for more than six years.

Chris Williamson, Chief Business Economist at IHS Markit commented: “the economic data for April were inevitably going to be bad, but the scale of the decline is still shocking.”

PMI data from the US was also lower in April but better than expected. The ISM non-manufacturing PMI was reported at 41.8 yesterday versus an analyst estimate of 37.5.

Further weighing on the euro was a ruling by the top court in Germany yesterday that requires the ECB justify its mass bond-buying. The European Central Bank has committed to more a trillion euros worth of easing to help stave off the negative effects of the Coronavirus.

While the ECB may be able to justify its decision, Italian PM Giuseppe Conte commented earlier today that the ECB is independent of the EU and that a court should not be able to rule over its actions.

Technical Analysis

EUR/USD is fast approaching a horizontal level at 1.0778 which held the pair higher in February and twice in April, on a daily close basis. The level is seen as strong support and buyers are expected to try and defend it.

The first level of resistance for the session ahead is seen at 1.0819 which is a level that has acted as support on a few occasions as of late. Beyond that, further resistance is found at 1.0853.

EUR/USD showed strong upward momentum last week as it had wiped out losses from the prior two weeks. However, the pair has erased those gains at this point, negating the bullish implications of last week’s price action.

From a broader perspective, the pair remains within a range. EUR/USD bears will want to see a break of 1.0778 support to open up the downside.

Bottom Line

• EUR/USD was further weighed by weak PMI figures out of the eurozone today which led to lows not seen since April 24th.
• The ADP will release their employment figures for April later in the session which analysts expect will show a loss of just over 20 million jobs in the US last month.