EUR/USD: Repeated failure to close above 1.13 is cause of concern for bulls, focus on Eurozone PMIs
- Euro's repeated failure to close above 1.13 may entice sellers.
- The shared currency could take a hit if the preliminary Eurozone PMIs miss estimates, validating concerns of several ECB policymakers that bank's recent economic projections are too optimistic.
The common currency's bounce from the April 2 low of 1.1184 has stalled near 1.13 this week despite the fresh evidence that China's economy may have bottomed out and a sharp drop in periphery government bond yields.
A closer look at EUR/USD's daily chart reveals the 1.1310-1.1325 range has proved a tough nut to crack in three out of the last four trading days. As a result, the pair has persistently failed to find acceptance above the psychological hurdle of 1.13. The immediate bullish case, therefore, has weakened.
The inability to climb 1.13 in a convincing manner could be associated with the rise in the US and German two-year government bond yields. That short duration bond yield, which is sensitive to interest rate expectations, rose to 300 basis points on Tuesday, the highest level since March 19. Notably, the yield spread has risen more than 30 basis points in the USD-positive manner over the last three weeks.
Further, reports hit the wires earlier this week stating that several European Central Bank (ECB) officials are worried that the bank's recent economic projections are too optimistic and the long projected recovery is unlikely to happen in the second half of this year.
These concerns would be bolstered if the preliminary German and Eurozone manufacturing and services purchasing managers' index (PMI) for April miss expectations. Germany's manufacturing PMI, due at 07:30 GMT, is expected to print at 45.00 versus 44.1 in April. Meanwhile, the Eurozone PMI for April, due at 10:00 GMT, is expected to have ticked higher to 47.9 from the previous month's 47.5.
A weaker-than-expected PMIs, therefore, could put EUR/USD on the path to re-test of 1.12. The newfound resistance range of 1.1310-1.1325 will likely be scaled in a convincing manner if the PMI's jump above 50.00, signaling a rebound in the factory activity.
Later in the day, the focus would shift to the US retail sales for March and the weekly jobless claims. As of writing, the pair is trading largely unchanged on the day at 1.1295.
Technical Levels
Author
Omkar Godbole
FXStreet Contributor
Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.
