The EUR/USD price spiked today after the relatively strong European manufacturing and services PMI numbers. The pair also dropped because of the ongoing sell-off of the US dollar.
Upbeat European data
The European economy is making a strong comeback as countries ease their travel restrictions. According to IHS Markit, the overall manufacturing PMI in the region increased from 54.8 in January to 57.7 in February. This increase was better than the median estimate of a drop to 54.3.
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The important services PMI also made some improvements, rising from 47.8 to 48.1. Analysts polled by Reuters were expecting the PMI to rise to 48.0. Since the PMI is below 50, it is a sign that many companies in the sector are still struggling. The most affected are hotels, restaurants, and tourism.
In Germany, the manufacturing PMI expanded from 51.6 in January to 60.6 in February. The services PMI rose from 50.8 to 51.3, which is a sign that the biggest economy has emerged stronger than others.
Elsewhere, in France, the manufacturing PMI rose from 51.6 to 55.0 while the services PMI fell from 47.3 to 43.6.
These numbers show that the manufacturing sector has emerged better than services. The latter is the most important, employing millions of people in the region.
The EUR/USD also rose after the relatively strong German PPI data. In January, the producer price index rose by 1.4% leading to an annualised increase of 0.9%.
Most importantly, the EUR/USD price is rising because of the dollar sell-off. The greenback has dropped against most developed and emerging market currencies. Indeed, the closely-watched dollar index has fallen for the past two consecutive days as bets of high inflation rises.
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EUR/USD technical outlook
The four-hour chart shows that the EUR/USD price rose sharply today. A closer look reveals that this trend is not by mistake. In fact, the pair has been forming an inverse head and shoulders pattern, as I wrote about two days ago. You can learn about these patterns in our free forex trading course.
The price has also moved above the 25-day and 50-day weighted moving averages (WMA). Therefore, in the near term, there is a possibility that the pair will first retest the neckline of the H&S pattern at 1.2173 and then break-out higher to 1.2250.
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