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Jignesh Davda

After pausing on Tuesday, EUR/USD proceeded higher yesterday to test a critical horizontal level that has capped two prior recovery attempts since the middle of April.

The single currency shows strength against its major currency counterparts but is weighed by a stronger dollar. The trade-weighted dollar index is down more than 1% this week and has erased gains from the week prior.

However, buyers have stepped in to halt the downward slide with technical support levels in play for several of the major currency pairs.

PMI data from the eurozone improved as surveyed purchasing managers were optimistic about the easing of lockdown restrictions. IHS Market reported the composite output index at 30.5 after it slid to an all-time low of 13.6 in April.

The data suggest the worst of the economic contraction is behind although Chris Williamson, the Chief Business Economist at IHS Markeit, believes demand will remain weak for a prolonged period. He expects GDP to fall 10% in the second quarter and is forecasting a decline of 9% this year.

Technical Analysis

EURUSD 4-Hour Chart

EUR/USD has recovered sharply higher this week but is at a point where an important resistance level has come into play.

Further, several of the major currency pairs show a similar technical outlook. GBP/USD, for example, eased lower yesterday after facing a confluence of resistance. The downside momentum in USD/CAD has slowed with important support in play.

While the correlated approach to important technical levels in some of the majors stands to trigger a bounce for the greenback, it is important to consider that the euro is outperforming most of its counterparts in the early day.

This could lead to a shallow retracement if one were to materialize. The mentioned upward resistance falls at 1.0992. Support for the session ahead is seen at 1.0919.

The broader view for EUR/USD is that it can still rally higher and that buyers are likely to keep the pair supported on dips.


Bottom Line

  • EUR/USD holds near weekly highs after eurozone PMI figures rebounded from record lows posted in April.
  • Major resistance is in play for EUR/USD and equivalent technical developments are seen in other major currency pairs. This could lead to a dollar recovery over the near-term.
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