Ahead of the ISM Manufacturing PMI release on Friday at 17:00 (GMT+2), the dollar remains strong, supported by robust labor market data and steady economic conditions. The EURUSD, down significantly since September, faces continued bearish pressure, though technical divergences hint at a potential rebound. Traders are eyeing key support and resistance levels for guidance.
Overview
Ahead of the ISM Manufacturing PMI release on Friday at 17:00 (GMT+2), the dollar remains strong, supported by robust labor market data and steady economic conditions. The EURUSD, down significantly since September, faces continued bearish pressure, though technical divergences hint at a potential rebound. Traders are eyeing key support and resistance levels for guidance.
Key Economic Events
Friday 17:00 (GMT+2) - USA: ISM Manufacturing PMI (USD)
Technical Analysis
After reaching a high of 1.12134 on September 25, the EURUSD exchange rate experienced a significant decline, losing more than 8% of its value. This decline was marked by a "Death Cross," where the 20-period Exponential Moving Average (EMA) crossed below the 50-period EMA, further intensifying the downward trend.
Additionally, a bearish failure swing was observed when the peak, 1.09359, failed to exceed the previous peak, leading to a drop below the critical support level of 1.07607, which confirmed the downtrend.
Supporting this bearish outlook, technical indicators such as the Momentum Oscillator and the Relative Strength Index (RSI) remain well below their neutral thresholds of 100 and 50, respectively. This indicates increased downward pressure and suggests the likelihood of further declines. However, a closer inspection reveals a positive divergence between the momentum oscillator and the price, which may signal a potential pause in the decline and a possible correction to the upside.
Potential Upside Targets
Should the buyers take market control, traders may direct their attention toward the four potential resistance levels below:
1.04578: The initial price target is set at 1.04578, which represents the swing high from December 30.
1.05123: The second price target is estimated at 1.051223, corresponding to the weekly resistance, R3, calculated using the Pivot Points methodology.
1.06284: The third target is identified at 1.06284, aligning with the daily high marked on December 6.
1.07607: An additional price target is projected at 1.07607, which mirrors a trough from October 23.
Potential Downside Targets
Should the sellers maintain market control, traders may consider the four potential support levels listed below:
1.02712 The initial support level is identified at 1.02712, reflecting the 161.8% Fibonacci Extension drawn from the low point, 1.03425, to the high point, 1.04578.
1.01554: The second support is 1.01554, mirroring the monthly support, S2, calculated using the standard Pivot Points methodology.
1.00456: The third support is established at 1.00456, representing the 361.8% Fibonacci Extension drawn from the low point, 1.03425, to the high point, 1.04578.
0.99694: An additional downward target is observed at 0.99694, corresponding to the 423.6% Fibonacci Extension drawn from the low point, 1.03425, to the high point, 1.04578.
Fundamentals
US weekly jobless claims fell to 211,000, the lowest in eight months, signaling a resilient labor market with low layoffs. Continuing claims dropped to 1.844 million, reflecting steady economic conditions despite some regional volatility. Construction spending remained flat in November, with gains in single-family housing offset by declines in multi-family projects. The data supports the Federal Reserve's cautious approach to interest rate cuts as the economy continues to expand while hiring slows modestly. The dollar rose to a two-year high against a basket of currencies, reflecting increased investor confidence and reduced expectations of aggressive monetary easing.
Conclusion
In conclusion, the upcoming ISM Manufacturing PMI release will play a crucial role in shaping market sentiment, particularly for the US dollar and EURUSD. While the dollar remains strong amid resilient economic indicators, the EURUSD's bearish momentum persists, with potential for corrective moves. Traders should monitor key support and resistance levels for further direction as the interplay between technical patterns and fundamentals unfolds.