Here’s why the EUR/USD declined after the strong EU manufacturing PMI

The EUR/USD pair is under pressure today even after the upbeat manufacturing PMI data from Europe. The pair is trading at 1.1730, which is significantly below last week’s high of 1.1905.

Eurozone manufacturing sector expands

The manufacturing sector in Europe continued to expand as the region reopened their economies. According to Markit, the manufacturing PMI in the bloc expanded to 51.8 in June. That was higher than the June’s contraction of 47.4.

It was also higher than the 51.1 that analysts polled by Reuters were expecting. Most importantly, the PMI was significantly higher than the historic low of 33.4 that happened at the height of the coronavirus lockdown measures.

The continuation of growth was widespread in Europe. Spain’s manufacturing PMI rose to a 27-month high of 53.5 while in Austria, the PMI rose to a 19-month high of 52.8. In France and Germany, the PMI rose to 52.4 and 51.0, the highest reading in 25 months and 19 months respectively. Analysts polled by Reuters were expecting the PMI to rise to 52.0 and 50.00, respectively. Greece and Netherlands recorded the worst PMI in July.

According to Markit, the expansion was mostly because of a return to growth in production and new orders. Output growth rose to the highest level since the start of 2019. In the statement, Chris Williamson of Markit said:

“The next few months numbers will therefore be all important in assessing whether the recent uplift in demand can be sustained, helping firms recover lost production and alleviating some of the need for further cost cutting going forward.”

As we reported earlier today, the manufacturing PMI in Australia and Japan also made some improvement.

EUR/USD decline linked to the stronger dollar

The EUR/USD pair decline today is mostly because of the stringer US dollar. The US dollar index, which measures the greenback against a basket of currencies, climbed by more than 0.35%. This is partly because investors are rushing back to the dollar as the US and China risks remain.

Over the weekend, Trump said that he was considering banning Tik Tok, the giant social media giant. It also emerged that Microsoft was pursuing the company. China, which has equally banned US social media giants, sees this as escalation of tensions between the two countries.

The dollar is also rising as bullish sentiment in the dollar returns after the currency fell to a two-year low in July.

Also, the USD is rising because of the phase four stimulus package that has stalled in Washington. With time running out, and with differences between Republicans and Democrats rising, there is a possibility that a deal will not be reached.

EUR/USD technical outlook

The daily chart shows that the EUR/USD pair is in its second consecutive day in the red. The pair is trading at 1.1728, which is significantly below last week’s high of 1.1900. The price is above the 50-day and 100-day exponential moving averages. It is also slightly above the 23.6% Fibonacci retracement level at 1.1600. Therefore, I suspect that the pair will continue moving lower as bears target the support at 1.1600.