EUR/USD price plunges below $1.18 on a setback in economic recovery

EUR/USD price plunges below $1.18 on a setback in economic recovery
Written by:
Michael Harris
21st August, 13:58
  • IHS Markit’s Flash Composite PMI for the EU plunged to 51.6 in August from 54.9 in July
  • The EUR/USD sellers will need a close below $1.1838 tonight to force the first negative close in ten weeks
  • Next levels to the downside are $1.1720 and $1.1620 as the USD bulls take control

EUR/USD price tumbled further lower today following a plunge in the PMI data for August. The sellers are now in control of the price action in the short-term, as they aim for at least $1.1720. 

Fundamental analysis: PMI data for August disappoints

Eurozone flash manufacturing purchasing managers index (PMI) reports for this month were worse than expected as IHS Markit’s Flash Composite PMI plunged to 51.6 from the previous result of 54.9 in July. 

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“The latest flash PMI data for August in France and Germany would appear to point to a plateauing in economic activity, particularly in the services sector, where rising infection rates here could well be tempering economic activity on the margins,” said Michael Hewson, an analyst at CMC Markets.

Since the start of July, the Euro rose to a more than two-year high of $1.1966 earlier this week, was by a weakened dollar which had a hard time recently due to concerns about the United States’ economic recovery and uncertainties over the new stimulus package.

The concerns about the US economic recovery were heightened after a bigger-than-expected increase in weekly jobless claims in the country and warnings from Federal Reserve representatives about a recovery in hiring.

The dollar index, which gauges the US dollar against a basket of currencies, advanced 0.5% to $93.21.

Technical analysis: A massive shooting star candle in the making

The greenback picked up some ground on Friday and is on a good path to avoid its ninth consecutive weekly fall. For this to happen, the sellers will need a close below $1.1838. If the USD ends the week in the red, it would be its longest losing run since the summer of 2010 which has occurred only 5 times over the last 30 years.

EUR/USD daily chart (TradingView)

EUR/USD price is also on its way to create a massive shooting star candle, which is a bearish reversal chart pattern. If the close below $1.18 is confirmed tonight, then you can expect that the USD bulls are in control early next week. Next levels to the downside are $1.1720 and $1.1620. 

Summary

Euro slipped on Friday as economic data in August highlighted a setback in economic recovery, paving the way for a first bearish weekly close in ten weeks.

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