EUR/USD Daily Forecast – Euro Holds Near Lows Following Upbeat PMI Data

The markets have reverted to familiar territory with equities rallying alongside the dollar, despite a material improvement in the Coronavirus outlook. EUR/USD has declined for two consecutive days and is consolidating near lows in early European trading.

PMI data out of the Eurozone pointed to an improvement in the economy with the manufacturing sector stabilizing while the services sector has held steadily expanded. The final services PMI figure came in at 52.5, ahead of the analyst estimate of 52.2, while the composite index rose to highs not seen since August.

European retail sales figures will be reported next. Later in the North American session, US Non-manufacturing and services PMI data will be released.

EUR/USD turned higher last week following a test of the 1.10 handle but has pared gains after hitting a hurdle at the 50-day moving average. The price action from here might just set the tone for the rest of the quarter. A decline below 1.10 would tend to reinforce the bearish trend seen since the start of the year. On the other hand, a break above 1.1100 offers a bullish signal that could see the pair making another run at the 1.1250 area.

Technical Analysis

After the sharp jump higher on Friday, volatility has steadily slowed in EUR/USD which might translate into a range for the session ahead.

So far, the pair has held within a range that began in the North American session yesterday. The near-term trend is bearish and the pair has shown some weakness in the early day as it was not able to rally despite the upbeat PMI report.

Support for the session ahead is seen at 1.1025 while the first level of upside resistance resides at 1.1072.

The PMI data scheduled for release from the US later on today often accompanies a volatile reaction in the markets although follow-through is rare. Market participants may look to fade extremes in either direction in the session ahead in the absence of market-moving headlines.

Bottom Line

• EUR/USD volatility is declining after two consecutive daily declines. The pair might be basing for a reversal although technical evidence is lacking for such a scenario at this time.
• The PMI data later today might cause some short-term volatility. A bigger reaction will likely be seen after NFP data which is scheduled for release on Friday.