EURUSD Under Pressure

Andreas Thalassinos
Andreas Thalassinos

22.3.2024

The inflationary pressure in the United States has caused a decline in the EURUSD exchange rate, which can be attributed to the optimistic Purchasing Managers' Index (PMI) data.  On the other hand, the corresponding PMI data from France and Germany have suffered significant declines.  As a result, the US dollar index has increased, which has also impacted the EURUSD price.

Overview

The inflationary pressure in the United States has caused a decline in the EURUSD exchange rate, which can be attributed to the optimistic Purchasing Managers' Index (PMI) data.  On the other hand, the corresponding PMI data from France and Germany have suffered significant declines.  As a result, the US dollar index has increased, which has also impacted the EURUSD price.

Upcoming Economic Events

Tuesday 02:00 pm (GMT): CB Consumer Confidence (USD)
Wednesday 12:30 am (GMT): Consumer Price Index y/y (AUD)
Thursday 12:30 pm (GMT): Gross Domestic Product m/m (CAD)
Thursday 12:00 pm (GMT): Final GDP q/q (USD)
Thursday 12:30 pm (GMT):  Unemployment Claims (USD)
Thursday 02:00 pm (GMT): Pending Home Sales m/m (USD)
Thursday 02:00 pm (GMT): Revised UoM Consumer Sentiment (USD)
Friday 12:30 pm (GMT): Core PCE Price Index m/m (USD)


Fundamentals

According to the latest S&P Global France Manufacturing PMI survey, the French private sector economy continued to contract throughout the first quarter.  This means that French manufacturing activity has been in decline for 14 consecutive months, with output hitting its lowest point since January 2023.  In March 2024, the Manufacturing PMI for France fell to 45.8, which is lower than February's one-year high of 47.1 and below market expectations of 47.5.  These results indicate a significant decrease in the French manufacturing sector, and the current economic conditions remain challenging.

The preliminary estimate indicated that the S&P Global Germany Services PMI increased to 49.8 in March 2024, up from the previous month's reading of 48.3 and surpassing market expectations of 48.8.  However, the service sector has been contracting for the sixth consecutive period, and the latest figure suggests stagnation, although it is the softest in the current sequence.

Additionally, preliminary estimates indicate that in March 2024, the S&P Global Germany Manufacturing PMI decreased to 41.6 from February's 42.5, which was lower than the anticipated 43.1.  The latest reading suggests that the manufacturing sector has experienced another significant decline, which is the most severe in five months, albeit with a slightly slower decline in output.

In the United States, the latest release of the S&P Global Flash Composite PMI indicates that business activity in the US continued to grow steadily towards the end of the first quarter.  However, the pace of growth was slightly lower than in the preceding survey period.  This can be attributed to a weaker increase in services activity while manufacturing production observed the fastest growth in almost two years.  The rise in new orders in March was slightly slower, reflecting a similar trend in demand.  Nonetheless, the job creation rate picked up, hitting the strongest level so far this year.  Firms also displayed an optimistic outlook towards business activity, with the most positive sentiment since May 2022.  Furthermore, inflationary pressures indicated signs of increasing, with input costs rising at the quickest rate in six months.  Firms also increased their selling prices to the largest extent since April last year.

The Purchasing Managers' Index (PMI) is a monthly survey among purchasing managers to assess business conditions.  The survey comprises several key indicators that include employment, production, new orders, prices, supplier deliveries, and inventories.  The index is measured on a scale of 0 to 100, with a reading above 50 indicating expansion in the economy compared to the previous month and a reading below 50 indicating contraction.  The PMI is a crucial economic indicator as it provides valuable insights into the economic health of a country.

Technical Analysis

Since December 28, 2023, the EURUSD currency pair has been following a downward trajectory after reaching a peak of 1.11396.  This trend has been characterized by a series of consecutive support levels being breached as a result of the formation of successively lower peaks and troughs.  Ultimately, the forces of supply and demand achieved a state of equilibrium at 1.06945.

Following this, the resistance level at 1.08884 was breached, leading to an upward reversal as indicated by a higher trough at 1.07964, coupled with a corresponding peak at 1.08884.  As a result, the exchange rate surged to the 161.8% Fibonacci extension. 
Subsequently, the bulls were weak to maintain the upward trajectory for the EURUSD, which was evident in the formation of a lower peak at 1.09426 and the subsequent breach of the trough at 1.08347, resulting in a downtrend.

The 50-period Moving Average and the Momentum Oscillator both indicate a bearish outlook.  Prices are currently trading below the Moving Average line, and the Momentum Oscillator is recording values below the 100 baseline.

Downside Potential Targets

1.07995: The first potential target is 1.07995, representing the S2 support level of the daily Pivot Points using the standard methodology.
1.07680: The second price objective is estimated at 1.07680, corresponding to the 161.8% Fibonacci extension drawn from the trough 1.08347 to the peak at 1.09426.
1.07435: The following target is seen at 1.07435, which represents the S3 support level of the daily Pivot Points using the standard methodology.
1.06601: Finally, the price target at  1.06601 aligns with the 261.8% Fibonacci extension of the latest swing.


Conclusion and Considerations

In summary, the EURUSD currency pair is experiencing bearish pressure, primarily due to positive economic indicators in the United States, unfavorable Purchasing Managers' Index (PMI) readings in Europe, and the rebounding of the US dollar index.  As such, investors and traders may exercise caution when considering investments and stay abreast of economic events and geopolitical changes,  as market conditions may pose challenges and risks.
 

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Andreas Thalassinos
Andreas Thalassinos

Andreas Thalassinos is a recognized authority in the financial markets and world renowned for his expertise in algorithmic trading. He is a Certified Technical Analyst and highly respected lecturer in the education of traders, investors, and financial markets professionals. Thalassinos has played a key role in the development of education within the industry, training tens of thousands of traders of all skill levels. Traders value his seminars and workshops for the rich content, his passionate, charismatic, and lively presentations.