EUR/USD: Is This Short Term Correction or Fresh Increase?


Key Highlights

  • EUR/USD traded to a new 2020 low at 1.0777 and
    recently recovered above 1.0820.
  • There was a break above a key bearish trend line
    at 1.0810 on the 4-hours chart.
  • The Eurozone Manufacturing PMI jumped from 47.9
    to 49.1 in Feb 2020 (Preliminary).
  • The German IFO Business Climate Index could
    increase from 95.9 to 96.0 in Feb 2020.

EUR/USD Technical Analysis

This month, the Euro followed a steady bearish path below 1.1000 and 1.0900 against the US Dollar. Recently, EUR/USD traded to a new 2020 low at 1.0777 before starting an upside correction.

EUR/USD Technical Analysis Euro US Dollar

Looking at the 4-hours chart, the pair recovered above the
1.0800 and 1.0820 resistance levels. Moreover, there was a break above a key
bearish trend line at 1.0810.

The pair recovered above 1.0840 and tested the 50% Fib
retracement level of the downward move from the 1.0925 high to 1.0777 low.
However, there are many hurdles on the upside, starting with the 1.0880 level.

The first key resistance is near the 1.0900 level (the last
breakdown zone). The next key hurdle is near the 1.0920 level and the 100 simple
moving average (red, 4-hours).

Therefore, EUR/USD might struggle to continue higher above
1.0880 and 1.0900 in the near term. If it fails to recover above 1.0900, there
could be a fresh decline.

An initial support is near the 1.0800 level, below which
there is a risk of more losses below the 1.0777 low. The next support is seen
near the 1.0740 level.

Fundamentally, the Eurozone Manufacturing Purchasing
Managers Index (PMI) for Feb 2020 (Prelim) was released by the Markit Economics.
The market was looking for a decline in the PMI from 47.9 to 47.5.

However, the result was well above the market forecast, as
the Eurozone Manufacturing PMI surprised with a jump to 49.1 (12-month high). Besides,
the Eurozone Services PMI came in at 52.8, up from the last 52.5.

The report added:

The eurozone economy grew at its fastest rate in six months during February, according to flash PMI® data. Although remaining weak, the rate of expansion accelerated fora third straight month despite signs of demand being dampened and production being stymied by the coronavirus outbreak.

Overall, EUR/USD is showing signs of a decent recovery, but it must surpass 1.0900 for more gains. Looking at GBP/USD, there was a sharp upward move from the 1.2860 support area.

Upcoming Economic Releases

  • German IFO Business Climate Index for Feb 2020 –
    Forecast 96.0, versus 95.9 previous.
  • Chicago Fed National Activity Index for Jan 2020
    – Forecast -0.92, versus -0.35 previous.

Aayush Jindal

Aayush is a Senior Forex, Cryptocurrencies and Financial Market Strategist with a background in IT and financial markets. He specialises in market strategies and technical analysis, and has spent over a decade as a financial markets contributor and observer. He possesses strong technical analytical skills and is well known for his entertaining and informative analysis of the currency, commodities, Bitcoin and Ethereum markets.

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