The European session released a slew of manufacturing and services PMIs for July. Let’s take a look at some key ones and assess EUR/USD’s reaction.
Manfuacturing PMIs (current, forecast, previous)
France (47.6, 48.5, 48.2)
Germany (52.9, 52.2, 54.6)
Eurozone (51.9, 52.0, 51.8)
France (50.4, 48.9, 48.2)
Germany (56.6, 54.7, 51.8)
Eurozone (54.4, 52.7, 52.8)
We also had a slightly better than expected Spanish unemployment report. The 24.5% is an improvement, but is still elevated.
Spanish Unemployment (Q1): 24.5%, forecast: 25.9%, previous: 25.9%
While today’s data points point to growth picking up in manufacturing and services in most cases, the implication for monetary policy is probably limited. We will have to see inflation and employment pick up before taking more stimulus (QE) off the table.
We are seeing the EUR/USD find support at 1.3440, and jump above a mini-consolidation formed during the 7/23 session. A rally is likely to be faded especially if it pushes back toward the 1.35-1.3520 area. However, there is upside risk toward 1.3580 and the bearish outlook would still remain.
1) The 1.35-1.3520 area is June’s consolidation low, When 1.35 broke the market came down to break the previous 2014-low at 1.3476. If this area holds as resistance, EUR/USD-bears are in control, and there is further downside beyond the 1.3440 low.
2) If traders put on a strong pullback. The next and most important line of defense will around 1.3560-1.3580. If price reaches this area, it is likely to be challenged by July’s falling trendline. The 200-, and 100-period SMAs will also likely be around this area. Also, 1.3580 was the neckline of a previous head and shoulder pattern formed around the beginning of July. All these factors should act as resistance. Otherwise, a break above 1.36 should shift EUR/USD from bearish to neutral and establish the 1.3440 as the 2014-low for the medium term.
(click to enlarge)
Looking at the daily chart, you can see that if the bearish outlook is maintained, the downside risk extends toward the Nov. 2013 low at 1.3295-1.33.
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