In the midst of limited trading last week, the price of the EUR/USD currency pair moved in a range between the support level 1.0909 and the resistance level 1.0993, which closed trading stable near it. The European Central Bank's signals towards tightening helped the euro a lot to maintain relatively its gains against the rest of the other major currencies, and on the other hand, the dollar was under pressure amid the cooling of US inflation figures.
The message from the April PMI survey is clear: the eurozone economy is recovering again in a strong way thanks to the recovery in the bloc's services sector. The Eurozone's main composite PMI reading - which includes the manufacturing and services sectors together - came in at 54.4 in April, beating the previous forecast of 53.7 and an improvement from the previous month's reading of 53.7. And according to S&P Global, compilers of the highly respected series of PMI surveys, business activity growth in the eurozone accelerated to an 11-month high in April.
The Services PMI posted a reading of 56.6, beating estimates of 54.5 and accelerating on March 55. This leaves little doubt that the ECB will raise interest rates in May and possibly again at subsequent meetings.
For its part, S&P Global says that the recovery was driven by a revival of demand and accompanied by “the largest increase in employment in nearly a year.”
On the face of it, the ECB's interest rate increases are not on demand and this could mean that the bloc's core inflation level remains high for longer unless further rate hikes are implemented. Expectations of further increases support bond yields in the euro area and this drives capital inflows of foreign investors, which was confirmed yesterday by the latest balance of payments figures in the region.
HSBC economists expect the economic picture to improve further and the current account surplus to widen. “This should support the upside for the euro against the US dollar,” says Dominic Banning, foreign exchange analyst at HSBC. And “It's hard to argue that the euro is too high. We continue to see a further rise to 1.15 in the coming months.”
The “fly in the ointment” was the continuing malaise in manufacturing in the Eurozone with the PMI reading for April coming in at 45.5, consistent with contraction. This is worse than the 45.5 the market was expecting and is down from the previous month at 47.3. Germany is of particular concern as the German Manufacturing PMI came in at 44 in April, but it was the German Services PMI at 55.7 that lifted the composite into growth territory at 53.9.
From the US, Initial Jobless Claims for the week ending April 14th missed the expected claims number of 140K with a slight increase of 245K. The previous week's continuing claims also missed expectations at 1.82M with a tally of 1.865M, while the Philadelphia Fed Manufacturing Survey for April came in below the estimated reading of -19.2 with a reading of -31.3. Earlier in the week, US building permits missed expectations while new homes came in better than expected.
Technical analysis of the EUR/USD pair:
- On the near term and according to the performance of the hourly chart, it appears that the EUR/USD is trading within a limited bearish channel formation.
- This indicates a slight short-term bearish bias in market sentiment.
- Therefore, the bears will target short-term profits at around 1.0950 or below at the support at 1.0931.
- On the other hand, the bulls will target profits at around 1.0989 or higher at the resistance at 1.1008.
On the long run, and according to the performance on the daily chart, it appears that the EUR/USD is trading within the formation of an ascending channel. This indicates a significant long-term bullish bias in market sentiment. Therefore, the bulls will be looking to extend the current rally towards 1.1072 or higher to the resistance at 1.1165. On the other hand, the bears will target pullback profits around 1.0855 or below at the support 1.0755.
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