EUR/USD analysis: dollar plunged after hitting fresh highs

Valeria Bednarik FXStreet

EUR/USD Current Price: 1.1180

May preliminary Markit PMI revived concerns about a global economic downturn.
EUR/USD recovery stalled below the critical 1.1200 figure.

The EUR/USD pair fell to a fresh multi-year low of 1.1106, to bounce sharply in the US afternoon and end the day with gains around 1.1160. Dollar's broad appreciation during the first half of the day was a mixture of dismal European data and fear, this last the result of mounting US-Sino tensions and Brexit chaos. As for European data, preliminary May Markit PMI came in below the market's expectations, reviving concerns about an economic slowdown in the Union. Manufacturing output remained subdued, with German PMI falling to 44.3 and the EU one shrinking to 47.7. The services PMI for both economies also contracted, down to 55.00 and 52.5, respectively. Additionally, Germany released the IFO Business Climate for May, which declined to 97.9 from 99.2, amid a sharp slide in the assessment of the current situation. Fears sent equities sharply lower alongside government bond yields, underpinning the greenback due to its safe-haven condition.

A major setback in US Markit PMI figures forced investors to get rid of the dollar, particularly considering the currency reached multi-week tops and was extremely overbought. The May preliminary Manufacturing PMI fell to 50.6, its lowest in almost ten years, while the Services Index fell to 50.9 its lowest in 36 months. US Initial Jobless Claims for the week ended May 15 came in better-than-anticipated, declining to 211K, although April New Home Sales slumped 6.9% more than doubling the expected -2.8%. This Friday, the US will publish April Durable Goods Orders, seen declining 2.0%.

The EUR/USD pair recovery it's much less impressive than what candles show, as the advance stalled below the 1.1200 and around 1.1170/80, a price zone that has contained advances ever since last Friday. The pair is now between the 38.2% and the 50% retracements of the latest daily decline measured between 1.1263 and the fresh 1.1106 low. In the 4 hours chart, it managed to advance above its 20 SMA, although below the larger ones, while technical indicators lost upward strength after entering positive ground. Chances of further gains are limited to an extension through 1.1200.

Support levels: 1.1140 1.1110 1.1080

Resistance levels: 1.1200 1.1245 1.1280

View Live Chart for the EUR/USD

Author

Valeria Bednarik

FXStreet

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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