- EUR/USD fails to remain above the psychological 1.1000 level and pulls back heading into the weekend, challenging trendline support
- Disappointing economic data in the Eurozone prompts traders to trim exposure to the common currency
- This article looks at major EUR/USD’s tech levels to watch in the week ahead
EUR/USD rallied and briefly recaptured the psychological 1.1000 level earlier in the week, but failed to hold on to its advance, ending the five-day period a soft note near 1.0890 after a steep sell-off on Friday following poor Purchasing Managers’ Index data in Europe.
While the euro has been on a strong bullish run since the start of the month, especially after the ECB lifted its inflation projections and signaled additional tightening for the forecast horizon, upward momentum is showing some real signs of exhaustion, just as the U.S. dollar begins to perk up again.
Friday’s batch of disappointing EU statistics may be responsible for the shift in sentiment. For context, factory activity deepened its slump in June, sinking to 43.6 from 44.8 in May, hitting its lowest level in 37 months, a sign that the manufacturing recession is intensifying.
EU ECONOMIC DATA AT A GLANCE
Source: DailyFX Economic Calendar
The HCOB Flash Eurozone PMI also revealed that the services sector softened significantly, falling from 55.1 to 52.4, well below the median estimate of 54.5. For interpretation, any figure above 50 indicates an expansion of output, while values below that threshold denote a contraction.
Although no broad conclusions should be drawn from a single report, the deteriorating growth environment is worrisome and a potential source of weakness for the common currency. If demand conditions do not stabilize and improve in the region soon, the ECB will find it difficult to justify further hikes, as a more restrictive stance could trigger a deeper downturn.
In this context, incoming economic reports should be closely scrutinized, as they may shed light on the outlook for monetary policy. That said, the key releases that deserve attention in the coming days will be the German Ifo business climate survey on Monday, German GfK consumer confidence on Tuesday, and Eurozone CPI results on Friday.
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EUR/USD TECHNICAL ANALYSIS
After reaching multi-week highs on Thursday, the EUR/USD has started to pull back, with the pair challenging its 50-day simple moving average and a rising trendline near 1.0865 heading into the weekend. While near-term technicals remain positive, the market bias could become less constructive if the exchange rate pierces the technical support zone described above.
In terms of possible scenarios, if EUR/USD drops beneath 1.0865 on a sustained basis, sellers may gain confidence to initiate an assault on 1.0780/1.0755. Prices may be able to establish a base around those levels before rebounding, but in the event of a breakdown, we could be looking at a possible retest of the May lows.
On the other hand, if buyers return and spark a bullish turnaround, initial resistance appears at the psychological 1.1000 mark. Further upside may be in store on a push above this barrier, with the next target located around the 1.1100 area, followed by 1.1190.