The underperformance of the EURUSD has been continuing for the four weeks in a row and tested the support level. Recent strength in the dollar index (DXY) has pressed the major below 200MAs and we expect a further continuation of this dollar momentum in the weeks ahead., as the tradable dollar index (DXY) rises above 200MAs and settles.
In the EZ Service and Manufacturing PMI data continues to show weakness. In addition, weak EA inflation data discounted the euro bullishness.
- EZ Manufacturing PMI fell to a 13-month low of 56.2 in April, down from 56.6 in March and slightly above the earlier flash estimate of 56.0.
- Eurozone PMI Services Business Activity Index fell to an eight-month low of 54.7 in April, down from 54.9 in March and below the earlier flash estimate of 55.0.
- Euro area annual inflation is expected to be 1.2% in April 2018, down from 1.3% in March 2018.
Germany IP (Tue) and ECB President Draghi speech.
As 2018 unfolds the euro lovers rushed to buy the common currency, now the view has been shifted to cautious mode after early 2018 gains were wiped off completely. The dollar index technical breakout from the 16-month descending trendline indicating further upward momentum is underway in the coming weeks.
Even with a DXY breakout, we are not too bearish EURUSD, our near-term support zone spread between 1.1900 and 1.1850 below this 1.1750 exists. On the other side, resistance seems to be at 1.1980 and 1.2050. Noting that the 161.08 fe (below chart) pointing 1.1830 coincides with the 14MA (weekly) and as shown on the below chart, 250MA sits at 1.1880.
Turning to daily studies, the daily RSI has been forming a base at an oversold level and underneath the oscillator has been turned to bullish. We believe from the current levels the major is offering limited downside risk in the near term. Overall, between 1.1900-1.1830 we could expect the price action will resume the short-term rally to 1.2000 and 1.2050 levels or even 1.2080 could possible.
View: Limited downside risk
Also read: Chart pack
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