EUR/USD Daily Forecast – Euro Falls on Weak PMI Data

German Manufacturing PMI Lowest in Nearly 7 Years

Purchasing manufacturing index figures out of France and Germany came in below analyst expectations across the board on Monday, causing a sharp drop in EUR/USD.

Manufacturing figures from Germany came in particularly weak, printing at a level not seen since October 2012. The sector has contracted for nine straight months, reigniting concerns over the economic outlook.

The services sector in Germany, while still expanding, took a turn lower in August. Markit reported the services PMI at 52.5 versus the analyst estimate of 54.3. It was the lowest reading since December last year.

The single currency is broadly weaker against all of its major counterparts and EUR/USD has dropped back below 1.1000 for the first time since the ECB meeting on September 12.

There are several events on the economic calendar that could trigger a volatile reaction in the exchange rate today. ECB President Draghi is scheduled to speak in Brussels in the early North American session. Fed members Williams and Bullard will also share their latest views on monetary policy. In terms of economic data, Euro area and US PMI data are scheduled for release later today.

Technical Analysis

Prior to today’s drop, the 1.1000 handle had provided support on several dips. It certainly seems today’s decline has taken out some stops from traders holding long positions.

It will be important whether EUR/USD is able to stay below the 1.1000 handle into the North American session. If it does, it could be signaling that the downtrend in the pair has resumed.

On the other hand, if the pair climbs back above the level, I would expect that it would go back to trading in a range, as it did most of last week.

Support at 1.0967 marks the lowest daily close this year and has been holding the pair higher thus far. The main upside resistance for the session ahead will be the 1.1000 price point.

Bottom Line

• EUR/USD has broken down following weak PMI data from France and Germany.
• There are several events on the economic calendar today that could trigger volatility.
• 1.1000 remains a key pivotal level for a near-term directional bias.