EURUSD Crawls Back from Multi-month Lows – Will the Slide Resume?

The euro rose against the U.S dollar on Monday. EURUSD snapped a four-day losing streak to pull back from the lowest level in the last six and a half months at $1.08584, logged on Friday. The recovery in the euro today came after a string of upbeat data from key Eurozone countries and composite data fro the EU as a whole.

Research group Markit on Monday reported Eurozone composite purchasing managers’ index for October accelerated at the fastest pace since the beginning of 2016. The gauge which measures the combined output of both the manufacturing and service sectors, took off to a ten-month high at 53.7 in the current month, from September’s reading of 52.6.

Particularly, manufacturing PMI for the region rose to a 30-month high at 53.3, while the services PMI jumped to the highest level since April 2016 at 53.5. All data releases beat expectations by analysts.

Earlier Monday, Markit reported that its manufacturing PMI reading for Germany – Europe’s largest economy – rose to 55.1 in October from 54.3 the previous month, beating forecasts which called for an unchanged reading. Not only did the manufacturing index hit a 33-month high, the German services PMI also climbed to a 3-month high at 54.1 this month, which topped expectations for an uptick to 51.5.

Markit also reported that France’s manufacturing PMI rose to 51.3 in October from 49.7 in the month before. However, the French services PMI was an exception and it slipped to 52.1 this month from 53.3.

In general, the Eurozone economy continued to prove to be resilient, which dampened the possibility that the European Central Bank will extend its stimulus program in December – three months before quantitative easing is currently set to expire.

The single currency fell to near seven-month lows against the U.S. dollar on Friday based on perceptions of a potential divergence between monetary policies of the ECB and the U.S Federal Reserve. While the Fed is highly expected to raise its rate by the end of this year, investors expect that the ECB’s buying-asset program will not end before its scheduled expiry. President Mario Draghi indicated last week that the mentioned program would not be ended abruptly without being tapered first and the bank has not discussed any tapering plan in its October meeting.

Draghi will be speaking at the German Institute for Economic Research, in Berlin on Tuesday, but before that, Federal Reserve Bank of New York President William Dudley and Federal Bank of St. Louis’s James Bullard will deliver separate speeches later today.

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Fig: EURUSD D1 Technical Chart

EURUSD breached another key Fibonacci retracement level after breaking below the 38.2% and 50.0% levels. The pair broke through the 61.8% handle at 1.09250 on Friday and the market entered the oversold zone. Therefore, a rally fueled by upbeat data today may be considered as a correction. With the two MAs hovering above the price action, the pair may reverse lower to test the key support at 1.08000.

EURUSD Trade suggestion

Sell Stop at 1.08600, Take profit at 1.08000, Stop loss at 1.08900

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