Is EURUSD Forming A Short Term Bottom? Longs Suggested As USD Fragile

The euro has retreated from 5-week highs to trade around 1.12000 against the greenback on the back of improved spending data released by Bureau of Economic Analysis on Tuesday and recent chaos in global stock markets. Nevertheless, any surge in the U.S dollar at the moment is seen to be a weak and limited ,move, as the timing of the next rate hike in the US is still expected to be far away.

Research group Markit on Wednesday reported a batch of service PMI readings for Eurozone member countries. Surveys conducted in Germany, France and Italy all showed expanding business confidence in July. However, the final composite PMI for the whole bloc, slid 0.8 point compared to June’s reading. However it still remained in the expansion territory.

Markit’s final composite Purchasing Managers’ Index for the euro zone was 53.2 in July, above a flash estimate of 52.9 and June’s 53, extending the long streak of data above 50 since mid-2013. Euro zone business activity conditions is in contrast to Britain, where has the economy has recorded contraction in all three main sectors of the economy including Manufacturing, Services and Construction since the Britain’s vote to leave the EU.

Meanwhile, the greenback regained momentum after BEA data reported that US personal spending increased by 0.4% in June, which was a higher than expected reading. Given the fact that consumer spending accounts for two-third of US GDP, this is quite a good sign for US economy especially after surprisingly weak U.S. second quarter growth data reported last week.

Nonetheless, sentiment towards the dollar remained vulnerable after Fed Dallas President Robert Kaplan urged renewed caution on raising U.S. interest rates amid a raft of global risks that could adversely affect the United States. Expectations for a U.S. rate hike before the end of year also declined to just over one-third, according to CME Group’s Fed Watch Tool.

EURUSD

Fig: EURUSD H4 Technical Chart

EURUSD is facing strong resistance at 1.11893. The current drop is expected to be a short correction as the pair has just broken through the 38.3% Fibonacci retracement level. The high recorded yesterday at 1.12340 is a level that should be watched closely, as this was a solid support level in earlier cycles. We may need to be patient until the pair moves past this resistance before it attempts the target at 1.13000

Trade suggestion

Buy Stop at 1.12340, Take profit at 1.13000, Stop loss at 1.11890

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