EUR/USD rally gains steam after strong EU retail sales and services PMI

EUR/USD rally gains steam after strong EU retail sales and services PMI
Written by:
Crispus Nyaga
December 3, 2020
  • The EUR/USD rallied after the strong EU retail sales numbers.
  • The services PMI declined in November but was better than expected.
  • The overall weaker US dollar has contributed to the euro rally.

The EUR/USD rally accelerated today after strong retail sales and better services PMI from the European Union. The pair is trading at 1.2125, which is 14% above the year-to-date low of 1.0630.

EUR/USD rally has continued

European retail sales rose in October

In a report released earlier today, the Eurostat said that the volume of retail sales jumped by 1.5% in October as the region continued to recover from the pandemic. This monthly increase was better than the previous month’s decline of 1.7%.

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The sales rose by an annualised rate of 4.3%, which also better than the previous month’s increase of 2.5%. Economists polled by Reuters were expecting the sales to jump by 2.7%.

Food and non-food products rose by 2.0% while automotive fuel fell by 3.7%. Among the best-performing countries were Denmark, Croatia, and France while the laggards were Slovenia, Slovakia, and Netherlands.

Still, analysts expect that sales declined in November as the number of Covid cases continued to rise in Europe. This led to many countries like France and Germany to implement light lockdowns to prevent the spread.

Services sector contracts

The EUR/USD also rose because of the better services PMI. As most analysts were expecting, the European services sector contracted in November as more non-essential businesses closed down. These included companies like restaurants, cafes, and bars, which are leading employers in Europe.

According to Markit, the services purchasing managers index (PMI), declined to 41.7 in November, the lowest it has been since May. It was also the third consecutive month that the PMI has remained below 50, which is a sign of contraction in the industry.

The composite PMI, which combines the services and the manufacturing industry, also declined to 45.3 in November. The best-performing countries were Germany, Ireland, Italy, and Spain. Other than Germany, the rest countries’ PMIs were below 50. In a statement, Markit said:

“The relative resilience of services in part reflects spill-over demand from the manufacturing sector for transport and other industrial support services, but also reflects the looser lockdown measures compared to those seen earlier in the year.”

The EUR/USD also rose because of the overall weaker US dollar. The dollar dropped to the lowest level since April 2018 as its demand waned.

EUR/USD technical outlook

EUR/USD technical chart

On the weekly chart, the EUR/USD has been on a strong rally and is now at the highest level since April 2018. It has also moved above the short and medium-term moving averages, which is another sign of the euro’s strength. As you can see in your real or forex demo account, the relative strength index (RSI) is close to the overbought level. Therefore, in the near term, the pair will likely continue rallying as bulls aim for the February 2018 high of 1.2555.