(Eren Sengezer – FXStreet)
– EUR/USD has staged a bleak recovery after PMI surveys.
– Near-term technicals suggest the pair remains extremely oversold.
– Modest improvement in risk mood could limit the dollar’s upside.
EUR/USD has recovered modestly after having touched its weakest level in nearly two decades at 0.9900. The short-term technical outlook suggests that the stays extremely oversold and the improving market mood suggests that the pair could extend its recovery. However, the underlying factors weighing on the pair remain in place, suggesting that recovery attempts are likely to remain as technical corrections.
The data published by S&P Global showed on Tuesday that the private sector’s business activity in Germany and the eurozone continued to contract in early August. The Composite PMI for Germany declined to 47.6 from 48.1 in July and edged lower to 49.2 from 49.9 for the eurozone. Although these readings came in slightly better than analysts’ estimates, they failed to help the shared currency in a meaningful way.
Commenting on the eurozone PMI survey, “the latest PMI data for the eurozone point to an economy in contraction during the third quarter of the year,” said Andrew Harker, Economics Director at S&P Global Market Intelligence. “Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August, seeing another record accumulation of stocks of finished goods as firms were unable to shift products in a falling demand environment.”
In the second half of the day, S&P Global will release the preliminary Manufacturing and Services PMI surveys for the US. July New Home Sales will also be featured in the US economic docket. In case these data disappoint, investors could see this as an opportunity to book their profits and cause the dollar to lose strength against its rivals.
Furthermore, US stock index futures were last seen rising between 0.25% and 0.35%. A rebound in Wall Street’s main indexes could also limit the greenback’s gains and help EUR/USD edge higher.
EUR/USD Technical Analysis
The Relative Strength Index (RSI) indicator on the four-hour chart is yet to move out of the oversold zone below 30. EUR/USD seems to have met support at 0.9900 and as long as this level stays intact, additional recovery gains toward 1.0000 (psychological level) could be witnessed. In case sellers move to the sidelines and this level is confirmed as support, the next recovery targets could be set at 1.0025 (20-period SMA) and 1.0050 (static level).
On the downside, a four-hour close below 0.9900 could open the door for an extended slide toward 0.9870 (former resistance area from October 2002) and 0.9800 (psychological level).