EURUSD Rally Runs Out of Gas as European Recovery Stalls


The EURUSD pair is down by 0.40% today as investors react to the rising number of coronavirus cases in Europe and the signs of a slowdown in Europe. The pair is trading at 1.1814, which is lower than this week’s high of 1.191.1963.

After months of slowing down, the number of coronavirus cases in Europe has started to rise again. Data shows that the seven-day moving average of daily cases in the five biggest countries has more than doubled this month. Most of these infections are being experienced around vacation spots and shopping centres in the region.

For example, Spain is reporting about 4,800 new cases every day while France is reporting about 2,400 new cases every day. Rising cases in Europe risk putting the recent growth of the economy at risk.

Indeed, numbers released today by Markit showed that the bloc’s economy has started to slow down. The report showed that the manufacturing PMI in Germany dropped from 54.9 in July to 54.8 in August. At the same time, services PMIs dropped from 54.7 to 50.1 while the composite PMI dropped to 51.7 to 51.8.

This slowdown was mostly because manufacturing PMI in France dropped below 50 to 49.0. It was partially offset by an improvement in Germany, where the PMI rose to 53.0 from the previous 51.0.

In the statement, Markit said:

“Companies remain cautious when making decisions on employment, again opting to lower staffing levels in August amid a lack of confidence in the strength of the recovery.”

EURUSD forecast

The daily chart shows that the EURUSD pair has been in a strong upward trend after bottoming at 1.0637 in March. The pair reached a YTD high of 1.1966 on Tuesday this week. The price remains above the 50-day and 100-day exponential moving averages. Also, it is above the ascending trend line that connects the lowest level in May and July. It is also in the lower side of the small channel that is shown in blue.

Therefore, at this point, the outlook for the pair is neutral. A move below the current support will imply that bears have prevailed, which will see the pair continue falling. If it happens, they will be targeting 1.1697, which is the lowest level in August.

On the other hand, it is possible that the pair will reverse and attempt to retest the higher side of the channel at 1.1966.

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EURUSD daily chart


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