EUR/USD Daily Forecast – Euro Extends Gains to Highs Not Seen Since 2018
The rally in EUR/USD remains strong as the pair has posted gains in nine out of the past ten sessions and trades at a 21-month high. However, major resistance is in play and the exchange rate is overbought at this stage.
Economic data from Europe today was positive with survey data for both the manufacturing and services industry showing an expansion. The index for the services sector printed at 55.1, ahead of the analyst estimate of 51.0, and after reaching a low of 11.7 in April.
Your capital is at risk
Similarly, the manufacturing index climbed to 51.1 against an estimate of 50. A figure above 50 indicates the economy is expanding.
Although the data shows that the economy is recovering well from the virus shock, Chris Williamson from IHS Markit warned of downside risks. The main concern is that employers are still laying off workers and are uncertain if there will be enough demand moving forward to sustain the recovery.
Later in the North American session, the US will release PMI figures which are also expected to have also moved into expansionary territory.
Technical Analysis
The momentum in EUR/USD remains to the upside although there are slight signs of exhaustion as the pair failed to move much on the earlier PMI beat.
Further, important resistance has come into play near the 1.1600 handle. This is an area that acted as resistance in 2016 and then provided support in 2017 and 2018.
In addition to the horizontal resistance, technical indicators show the pair overbought on both a daily and weekly chart which could trigger a near-term pullback.
The inversely correlated dollar index (DXY) is nearing support from its March low which is something EUR/USD traders might want to be mindful of.
Lastly, the equity markets have come under some pressure. Considering EUR/USD has had a relatively strong correlation with stocks as of late, this could cause a pullback, or at least halt the uptrend.
Bottom Line
- Data from Europe points to a strong economic recovery although there are some concerns whether the momentum can be sustained.
- EUR/USD faces notable resistance near the 1.1600 handle.
For a look at all of today’s economic events, check out our economic calendar.