EUR/USD analysis: Bulls at the mercy of USD price dynamics, US macro data eyed for fresh impetus
|Having dropped to a new 2019 low level of 1.1107, the EUR/USD pair witnessed a dramatic intraday turnaround and rallied to the top end of its weekly trading range. The shared currency initially took a beating following the release of weaker economic data from the Euro-zone - more importantly, dismal PMI prints, which suggested that slowdown in the manufacturing sector is spreading over to services. Adding to this, the German IFO business climate index fell to its lowest level since 2014 and added to worries about a sharp economic slowdown in the region. The minutes from the ECB’s April 9-10 meeting acknowledged the slowdown concerns and showed that policymakers were getting less confident on the economic recovery.
Meanwhile, the recent escalation in the US-China trade tensions continued fueling fears over a full-blown trade war between the world's two largest economies and benefitted the US Dollar's relative safe-haven status against its European counterpart. However, the USD rally to two-year tops turned out to be short-lived amid a free fall in the US Treasury bond yields - led by the global flight to safety and prompted some aggressive short-covering around the major. The pair recovered around 80-pips from daily lows and was further supported by dismal US manufacturing PMI, which fell to 50.6 in May - its lowest level in almost ten years. The pair settled marginally below the 1.1200 round figure mark and held stable within a narrow trading range during the Asian session on Friday.
In absence of any major market moving economic releases from the Euro-zone, traders now look forward to the US economic docket - highlighting the release of durable goods orders, in order to grab some meaningful trading opportunities on the last trading day of the week.
From a technical perspective and despite the overnight sharp recovery, the near-term outlook remains in favor of bearish traders. However, a sustained move back above the 1.1200 round figure mark might delay the bearish case and trigger another leg of recovery towards 50-day SMA, around the 1.1230 region en-route the 1.1260-65 supply zone. Any subsequent up-move seems more likely to confront a stiff resistance and remain capped at the top end of a near five-month-old descending trend-channel, just ahead of the 1.1300 round figure mark.
On the flip side, the 1.1150-45 region now seems to protect the immediate downside and is followed by yearly lows support near the 1.1110-05 region. A convincing break through the mentions support will point to the resumption of the larger downtrend and accelerate the slide further towards the trend-channel support, currently near the 1.1025-20 region.
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