EUR/USD – Rallies despite continued weakness in eurozone PMIs

  • Eurozone data remains recessionary
  • EURUSD rebounds after surveys
  • Is it just a corrective rally?

The data from the eurozone isn’t improving early in the new year, with the latest PMI surveys all remaining firmly in contraction territory.

While we’re continuing to see improvements in the manufacturing survey, that comes from a very low base and still some way from the 50 threshold that separates growth from contraction. And it doesn’t appear on course to breach that threshold any time soon.

The services sector is arguably more problematic as it’s a far more important segment of the economy and it’s showing little sign of recovering. This may aid the case for the ECB to consider cutting rates in the coming months if demand remains soft and the economy is either in or on the brink of recession but we’ll need to see more evidence of that over the next six weeks to make March a live prospect. Assuming, of course, inflation doesn’t enable that all on its own.

EURUSD rebounds after brief divergence

Despite this morning’s data, the euro is rallying against the dollar today but is there more to come?

EURUSD Daily

Source – OANDA

Before today’s move, the pair had been falling in the opening weeks of the year but in recent days, momentum had been waning. That was evident in the stochastic which clearly made higher lows on the most recent descent in price. But it’s clearer again on the 4-hour chart below on both the stochastic and MACD.

EURUSD 4-Hour

What’s also clear though is that we’ve only seen a small decline since the break of the head and shoulders neckline a week ago. So either this rally is corrective, something Fib levels could help identify, or something has fundamentally changed in that time.

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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam