EUR/USD: Coronavirus vs Manufacturing PMI’s

Fiona Cincotta CityIndex

EUR/USD is trending lower on Monday as coronavirus fears overshadow tentative signs of recovery in Eurozone and German manufacturing sector.

EZ manufacturing PMI 47.9 vs 47.8 exp.
German manufacturing 45.3 vs 45.2 exp

Eurozone manufacturing activity contracted again in January but did so at its slowest rate since summer 2019, suggesting that the worst could be over for the bloc's battered manufacturing sector. Within the closely watched PMI report, forward looking components such as new orders, employment and quantity of purchases all improved

Manufacturing across the Eurozone, but most predominantly in Germany, Europe's largest economy had been hit hard by the US – China trade dispute and slowing trade. The signing of the first phase trade deal between US and China appears to be lifting confidence which is slowly filtering through to stronger global trade and the manufacturing sector.

The data comes following disappointing German retail sales on Friday which showed a decline of -3.3% month on month, despite consumer confidence picking up. The German economy is by no means out of the woods, but there are some signs of green shoots of recovery.

Coronavirus impact remains unclear

However, investors are unable to get too excited here as Germany is expected to see its exports weaken once again, but this time owing to coronavirus. The outbreak in China, Germany's largest trading partner has disrupted business there with a significant economic impact expected, which is bound to negatively affect German exports.

The dollar started the week higher boosted by safe haven flows amid ongoing concerns surrounding coronavirus. The number of official cases has risen to 17,000 with 360 deaths, including one outside of China.

US data has underwhelmed recently with downbeat consumer spending and inflation. Today traders will look towards US ISM manufacturing figures, which are expected to show a recovery in the sector from its 477.2 level in December.

Levels to watch:

EUR/USD has fallen 0.25%, trading below 200 & 100 sma on 4-hour chart, although remains above 50 sma.

The 50 sma offers near term support at $1.1040, a breakthrough here could open the doors to $1.0992, the low for 2020 year to date.

On the flip side, resistance can be seen at $1.11 (round number, high 31st Jan), prior to $1.1120 (high 21st Jan) and $1.1174 (high 16th Jan).

Author

Fiona Cincotta

CityIndex

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