When it rain it pours. Just when Cyprus bailout situation appears to be improving with Finance Minister announcing that a deal may be reached soon with assistance from Moscow, worse than expected Europe PMI came in to push EUR lower once again. Data from France came in weaker, with Manufacturing PMI hitting 43.9 vs expectations of 44.2 and Service PMI 41.9 vs 44.0 expected. Euro-zone was also lower. Composite index came in at 46.5 vs 48.2 expected while service came in at 46.5 vs 48.2 expected. Manufacturing is slightly better at 46.6 but also missed the mark of 48.2 expected. Perhaps the most damning of them all is the data from Germany. The darling and white knight of Eurozone indicated shrinkage in Manufacturing sector with a reading of 48.9 instead of mild growth 50.5 expected. Service sector PMI is more encouraging, showing growth at 51.6 but still lower than expectations of 54.9, and below previous month’s reading of 54.1 In fact, all the aforementioned data were lower than prior month, painting a very negative picture on Europe’s economic conditions.
The responded strongly, using their actions to show what they think about the data. EUR/NZD collapsed further, below yesterday’s swing low and threatening a bearish breakout from here out. Earlier today, EUR/NZD was already depressed due to NZ GDP announcement, which strengthened Kiwi momentarily. Even though NZD/USD is facing resistance of its own, EUR/NZD remains downbeat even before the PMI data was released. Stochastic reading is nearing Oversold region, yet there is still space for readings to advance lower, and does not necessary invalidate the potential breakout we’re seeing here.
Perhaps the biggest bearish technical sign is the fact the EUR/NZD is one of the very few currency pair that has failed to fill up the gap. Almost all EUR related pairs have managed to breached the gap, even moving higher above the gap. This is unfortunately missing in EUR/NZD, and is a sign that bears continue to hold strong initiative here.
The importance of current sell-off is also clear via the daily chart. Price has broken below the rising trendline which has provided support since Early November. However, we are definitely still in the early stages of a breakout. Confirmation should ideally be sought as there are still more hours to go (US session haven’t started yet). There is still a chance that price may still rebound higher above the trendline, invalidating the breakout. This is in-line with what Stochastic suggest may happen with readings already within Oversold region. Nonetheless, there is also space for readings to head lower, in support for a continued bearish breakout scenario. A move higher and preferably above 1.57 may help to alleviate bearish pressure temporarily, and perhaps even trigger bullish acceleration towards 1.59 as price trades back into the Late Feb/Early March consolidation.
Fundamentally, EUR’s strength will hinge heavily on Cyprus bailout outcome. However, beyond Cyprus, data suggest that long-term outlook remains bleak, and will continue to weigh EUR lower. On the other hand, NZD is still enjoying some bullish euphoria due to the stronger GDP figures, yet that could be a red herring against the ongoing drought that is plaguing its livestock produce. We are looking at numerous factors that could move EUR/NZD either way, and hence traders should continue to practice caution even as price looks tantalizing below the 1.56 round number.
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