EURUSD Posts Modest Gains Despite Mixed Euro Zone PMIs

Despite disappointing forex news from the euro zone yesterday, the euro was still able to score a win against the dollar in yesterday’s trading. EURUSD started this week’s trading at 1.1123. It traded steadily higher to an intra-day high of 1.1157. By the end of the New York session, the currency pair had settled at 1.1142.

Services Expand, Manufacturing Contracts in November

A roster of PMI reports were released yesterday. These reports are taken as leading indicators of economic health because they reflect the sentiment of business executives on current economic conditions. While data from France printed higher than the 50.0 baseline reading that indicates expansion, they came in mixed. The services PMI for November was higher at 52.4 versus the 52.1 forecast. However, the reading for October was revised lower from 52.9 to 52.2. On the other hand, the manufacturing PMI missed forecasts at 50.3 versus the 51.5 consensus.

As for Germany, the services PMI also topped the 51.2 estimate when it came in at 52.0 for November. The manufacturing sector, on the other hand, remained stuck in a contraction. It printed at 43.4 for November, missed the 44.6 forecast, and was even lower than where it was from October’s 44.1 reading.

As for the euro zone-wide readings, the services PMI came in as expected at 52.0. The sluggishness in the manufacturing sector of the two largest economies in the bloc was also reflected in the euro zone manufacturing PMI. It printed at 45.9 versus the 47.3 consensus.

Why did the euro rally despite mixed PMIs?

It would seem that yesterday’s price action suggests that market participants have become unimpressed by the phase one deal announced the US. Remember EURUSD during Friday’s trading when the deal was initially announced. Market participants are worried that whatever has agreed at this point can easily be retracted. The real challenge will be in negotiations for phase two of a trade deal.

Trade Balance Due Today

The only data out of the euro zone today is the trade balance report for November. The forecast is for a 19.7 billion trade surplus.

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EURUSD Outlook

On the 4-hour time frame, we can see that EURUSD has been steadily trading higher. This is evidenced by the rising trend line that becomes apparent when you connect the currency pair’s higher lows on November 29, December 6, and December 11. Given the current price action, it would seem that EURUSD still has some room to move lower to test support at the trend line. We can expect the currency pair to bounce in the  area around 1.1110 because aside from the trend line, the price seems to coincide nicely with the 50% Fib level (when you draw from the low of December 6 to the high of December 13). EURUSD also found resistance at this level on December 5.

On the other hand, if the euro finds enough bids in today’s trading, we could see the currency pair make a run for the 1.1200 handle where it previously made highs.

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