EUR/USD takes a step back after strong US manufacturing PMI data

The EUR/USD pair eased during the Asian session as traders reacted to the strong manufacturing PMI data from the Eurozone and the US. The pair is trading at 1.1900, which is lower than yesterday’s high of 1.2018.

Eurozone manufacturing activity cools

In a report yesterday, Markit said that manufacturing PMI in the Eurozone eased in August. The official PMI came in at 51.7 in August, from the previous 51.8. That was in line with what analysts were expecting. Still, the figure implies that the sector is doing well since a PMI reading of 50 and above is a measure of expansion.

According to Markit, countries like Italy, Ireland, Netherlands, and Germany recorded the highest PMI. In Germany, the PMI rose to a 22-month high of 52.2 while in Italy, it rose to a 26-month high of 53.1. However, countries like Spain, Austria, and France had weak manufacturing activity in August. In France, the PMI dropped to a two-month low of 49.8.

The growth in manufacturing activity was mostly because of rising new businesses from Europe and abroad. Purchasing activity and input prices were little changed. In a statement, Chris Williamson of Markit said:

“Caution is warranted in assessing the likely production trend, however, as so far it would have been surprising to have seen anything other than a rebound in output and sentiment. Worryingly, order book growth cooled slightly in August, and there are indications that firms are bracing for a near-term weakening of demand.”

US manufacturing PMI expands

The EUR/USD also reacted to strong manufacturing PMI data from the United States. According to Markit, the PMI rose to 53.1 in August, which is higher than July’s increase of 50.9. This increase was driven by a rapid increase in new orders and employment. Exports rose to the highest level in four years while employment increased at the fastest pace since November last year. In a statement, Williamson said:

“The manufacturing upturn gained further ground in August, adding to indications that the third quarter should see a strong rebound in production from the steep decline suffered in the second quarter.”

Another data by the Institute of Supply Management (ISM) showed that the manufacturing PMI rose ro 56.0. That was higher than July’s increase of 54.2 and the consensus estimates of 54.5. In their report, the employment index rose to 46.4 while new orders increased to 67.6.

These numbers raise the possibility that the US will have a V-shaped recovery even as the number of coronavirus cases continue to increase.

EUR/USD technical outlook

The weekly chart shows that the EUR/USD pair has been in a strong upward trend since March, when it bottomed at 1.0637. The price is above the 50-week and 100-week exponential moving averages. It is slightly above the 61.8% Fibonacci retracement. The pair has also been in a consolidation phase, as shown by the green square. Therefore, now that it has hit the important resistance at 1.1200, the pair is likely to continue rising as bulls aim for the next level at 1.2050.