EUR/USD Forecast: Pressured by Pompeo? PMIs further fuel bulls, coronavirus figures eyed


  • EUR/USD is holding onto the high ground around 1.16 following upbeat eurozone PMIs.
  • Sino-American tensions, US coronavirus figures, and data may cap any gains.
  • Friday's four-hour chart is showing the potential for more gains.

Completing a bullish week for the euro – that was the headline of the preview for Friday's data and it turns to reality, keeping the common currency bid. Markit's preliminary Purchasing Managers' Indexes for July all beat expectations, with the rebound in services more pronounced that in the manufacturing one. 

The PMI surveys express optimism about the old continent's recovery from the worst days of the pandemic and despite flareups in several countries such as Spain, France, and Belgium. More importantly, the data predates this week's EU agreement on a €750 billion recovery fund. 

That agreement – reached after five days of exhausting negotiations – continues underpinning the euro. Demand for bonds – both in creditor countries such as Germany and debtor ones such as Italy – have been rising. That is a show of confidence by investors and could keep the euro bid going forward. The PMIs provide additional support to the major upside driver which is fiscal stimulus. 

The risk to EUR/USD's rally comes from the US side. The safe-haven dollar may receive support from intensifying Sino-American tensions. China closed the US consulate in Chengdu, retaliation for America's move against Beijing's office in Houston.

Secretary of State Mike Pompeo delivered a highly critical speech of China, referring to activities in Texas and also to the regime, which he describes as authoritarian and "tyrant." While Pompeo pummeled Chinese President Xi Jinping, he stressed that the trade deal between the world's largest economies remains intact, proving some solace to investors. 

Markets have also stabilized thanks to progress on a new fiscal relief package. Republicans have dropped their demand for a payroll tax cut and Democrats will likely ease their demands to extend federal unemployment benefits at their entirety. The jobless receive a weekly top-up of $600 set to expire at the end of the month. That sum could be reduced. 

In the meantime, the number of those applying for unemployment benefits is rising. Initial jobless claims increased to over 1.4 million in the week ending July 17, another sign that the resurgence of coronavirus has halted the recovery. That is the same week as Non-Farm Payrolls surveys are taken. Later on Friday, New Home Sales for June are of interest and will likely show a rebound. 

See US Existing Home Sales Soar: Housing market metrics improve

The first half of June was upbeat but cases began rising in the latter part of the month and have continued causing concern since then. US infections topped four million and the daily death rate has topped 1,100 once again. Updated COVID-19 figures from states will have the last words of the week.

Overall, developments in the old continent are positive but concerns about the US could boost the dollar and limit gains. 

EUR/USD Technical Analysis

Euro/dollar continues benefiting from robust upside momentum on the four-hour chart and trades above the 50, 100, and 200 Simple Moving Averages. The Relative Strength Index is just below 70, thus outside overbought conditions, at least for now.

All in all, there is room for more gains.

Resistance awaits at the new 22-month high of 1.1622. It is followed by 1.1650 and 1.17.

Support awaits at 1.1555, which provided support on Thursday. The next level is 1.1505, another cushion on the way up, and then 1.1450, which capped it last week.

More Hot Summer In Markets: Gold, silver, euro, and dollar volatility explained

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD hits fresh two-month highs amid dollar weakness

EUR/USD has hit new two-month highs above 1.1940 as the dollar resumes its decline. Optimism about the US transition and covid vaccines is weighing on the safe-haven dollar. 

EUR/USD News

GBP/USD falls toward 1.33 amid Brexit acrimony

GBP/USD is falling toward 1.33 as both the EU and the UK are busy blaming each other for an impasse in Brexit talks. The thorny issues remain fisheries, governance and setting a level playing field.

GBP/USD News

XAU/USD attempting to bounce up from $1,775 low

Gold futures accelerated heir downtrend from last week highs near $1,900, breaking below the 200-day SMA, at $1,800 area, to hit its lowest prices in nearly five months, at $1,775.

Gold news

Dollar offered ahead of the weekend

Equities are finishing the week on a firm tone, while the US dollar remains heavy. In the Asia Pacific, only Australia and India did not end the week on a firm note.

Read more

Black Friday 2020 Discounts!

Learn to trade with the best! Don't miss the most experienced traders and speakers in FXStreet Premium webinars. Also if you are a Premium member you can get real-time FXS Signals and receive daily market analysis with the best forex insights!

More info

Forex Majors

Cryptocurrencies

Signatures