US PMI Overview
S&P Global will release the flash version of the US Manufacturing and Services PMIs at 14:45 GMT this Tuesday. The gauge for manufacturing is expected to remain in contraction territory for the fourth straight month and come in at 46.1 for January, slightly lower than the 46.2 in the previous month. The Services PMI, meanwhile, is also anticipated to deteriorate further to 44.5 for the current month, marking the sixth successive month of contraction. Furthermore, the composite PMI is expected to show a contraction in the overall business activity and edge down to 44.7 from 45.0 previously.
How Could it Affect EUR/USD?
Ahead of the key release, a fresh leg down in the equity markets assists the safe-haven US Dollar to stage a modest recovery from a nine-month low touched earlier this Tuesday. A stronger US PMI print could lend additional support to the Greenback, though expectations for a less aggressive policy tightening by the Fed should cap gains.
Conversely, weaker US macro data will reaffirm market bets for a smaller 25 bps Fed rate hike in February and prompt fresh selling around the buck. Apart from this, the recent hawkish rhetoric from ECB officials, signaling additional jumbo rate hikes in the coming months, might continue to underpin the shared currency. This, in turn, suggests that the path of least resistance for the EUR/USD pair is to the upside.
Eren Sengezer, European Session Lead Analyst at FXStreet, offers a brief technical outlook for the major and writes: “Despite the latest pullback, EUR/USD continues to trade within the ascending regression channel coming from early January. Additionally, the Relative Strength Index (RSI) indicator on the four-hour chart holds above 50. Both of these technical developments suggest that the pair's current action could be considered as a technical correction.”
Eren also outlines important technical levels to trade the EUR/USD pair: “On the downside, 1.0850 (lower limit of the ascending channel, 20-period Simple Moving Average (SMA)) aligns as immediate support. If EUR/USD falls below that level and starts using it as resistance, sellers could show interest and trigger an extended slide toward 1.0830 (50-period SMA) and 1.0800 (psychological level). ”
“In order to gather bullish momentum, EUR/USD needs to rise above 1.0900 (psychological level, mid-point of the ascending channel) and stabilize there. In that scenario, additional gains toward 1.0930 (upper-limit of the ascending channel) and 1.0980 (former support, static level) could be witnessed.” Eren adds further.
Key Notes
• EUR/USD Forecast: Euro needs to stabilize above 1.0900 to reach new multi-month tops
• EUR/USD: Gains through low 1.09s to revive bull move for a push on to 1.1000/50 – Scotiabank
• EUR/USD Price Analysis: Upside bias unchanged above 1.0650
About the US Manufacturing PMI
The Manufacturing Purchasing Managers Index (PMI) released by S&P Global captures business conditions in the manufacturing sector. As the manufacturing sector dominates a large part of total GDP, the manufacturing PMI is an important indicator of business conditions and the overall economic condition in the United States. Readings above 50 imply the economy is expanding, making investors understood it as a bullish for the USD, whereas a result below 50 points for an economic contraction, and weighs negatively on the currency.
About the US ISM Services PMI
The Services Purchasing Managers Index (PMI) released by S&P Global captures business conditions in the services sector. As the services sector dominates a large part of total GDP, the services PMI is an important indicator of the overall economic condition in US. A result above 50 signals is bullish for the USD, whereas a result below 50 is seen as bearish.
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