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.

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