Euro falls to 4-mth low despite strong PMIsThe euro continues to head south in Wednesday trading. Currently, EUR/USD is trading at 1.1828, down 0.17% on the day.
Just four weeks ago, EUR/USD was basking above the 122 level and looking strong against the US dollar. Fast forward to the present, and the euro is struggling to keep above the 1.18 level as its trades at its lowest level since November 23rd. It's been a dreadful March, with EUR/USD falling 2 percent this month. The main catalyst for the slide against the US dollar has been the significant rise in US Treasury yields, which have boosted the dollar. US 10-year yields rose to 1.73% on Friday, as shade below its 52-week high of 1.75%. If the upward trend resumes, we can expect the euro to lose more ground.
Investor sentiment towards the eurozone has been weak, to such an extent that excellent PMI data on Wednesday failed to give the euro a much-needed boost. On the manufacturing front, France, Germany and the eurozone all showed strong growth, highlighted by an outstanding German read of 66.6. Services also showed improvement, although France and the eurozone remain in contraction territory. German Services PMI improved to 50.8, the first time the index has shown growth in seven months.
The euro is also under pressure this week over a vaccine dispute with the EU. A shortage of AstraZeneca vaccines across Europe has resulted in a threat by the EU to block shipments of the vaccine to the UK. Such a move would likely send tense relations between the EU and the UK to a new low. The irony of the EU move to hoard vaccines has not been lost in British media, with The Telegraph newspaper publishing a survey which shows that a majority of people in Germany, France, Italy and Spain consider the AstraZeneca vaccine as unsafe.
EUR has broken below critical support at 1.1840, where the 200-DMA is also situated. If EUR closes below this level, we can expect further losses, with the next support line at 1.1808. If the downturn continues, it could potentially reach as low as the 1.16 level in the coming days. On the upside, 1.1971 has some breathing room in resistance as EUR loses ground.
Pmis
Euro dips to 4-week low, German Retail Sales slideThe euro is showing limited movement in the European session. Currently, EUR/USD is trading at 1.2035, down 0.10% on the day. The euro hasn't managed a winning day since Thursday, and the pair is perilously close to the 1.20 line, which is a psychologically important level.
Germany is the eurozone's largest economy and has traditionally been the economic powerhouse of the bloc. With the eurozone still grappling with the devastating effect of the Covid pandemic, Germany is again being counted on to lift the eurozone to recovery. However, Germany's economy is also showing signs of fatigue. German GDP for Q4 of 2020 showed negligible growth, although the gain of 0.3% managed to beat the street estimate of 0.1%. On Tuesday, German Retail Sales for January came in at -4.5%, after a disastrous -9.6% reading in December. This caught the markets by surprise, as the street consensus stood at +0.2%. The sharp drop in consumer spending can be attributed to the partial Covid-19 lockdown which started back in December.
One bright spot in the German and eurozone economies has been the manufacturing sector. In February, German Manufacturing PMI came in at 60.7 and the eurozone read at 57.9, both of which were revised slightly upwards. These figures are well into expansionary territory, and the German release marked a 3-year high. In contrast to the rosy manufacturing numbers, the services industry has lagged behind and remains in contraction mode due to the lockdowns which have curtailed many services. Germany's Services PMI is projected to come in at 45.9, well below the neutral 50-level.
EUR/USD faces resistance at 1.2091. Above, there is resistance at 1.2190. On the downside, the pair is putting strong pressure on the 100-day moving average (MA), which is situated at 1.2019. A close below this line would be a technical bearish signal for the pair. The pair is potentially targeting support at 1.1945, which could potentially extend to the round number of 1.1800.
