EUR/USD: Here’s why the euro retreated after strong EU PMIs
- The EUR/USD declined today after the strong manufacturing PMI data.
- This is mostly because of the action in the US Treasuries market.
- The benchmark 10-year declined after reaching its highest level this year.
The EUR/USD price dipped today even after the relatively strong manufacturing PMI data from the European Union (EU). The pair dropped to an intraday low of 1.2050 after initially rising to 1.2240.
Eurozone manufacturing PMI
IHS Markit released relatively strong Eurozone manufacturing PMI data. In its report, it said that the manufacturing PMI rose from 54.8 in January to 57.9 in February. This increase was better than the median estimate of 57.7.
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The strong performance of the manufacturing sector was spread across the region. In Germany, the biggest economy in Europe, the PMI rose from 57.1 to 60.7, better than the estimated 60.6. Similarly, in France, the PMI increased from 51.6 to 56.1 while in Italy, it increased from 56.1 to 56.9.
In its report, Markit attributed this performance to the rising demand for manufactured goods and the overall optimism among manufacturers because of the ongoing vaccination drive. The statement said:
“Producers are benefitting from resurgent demand for goods in both domestic and export markets, linked to post-COVID recovery hopes driving renewed stock building and investment in business equipment and machinery, as well as improved consumption.”
The EUR/USD pair also rose after the strong inflation data from Italy. According to the country’s statistics agency, the headline consumer price index (CPI) rose from 0.4% in January to 0.6% in the previous month. This increase was better than the median estimate of -0.6%. The harmonised CPI increased from 0.7% to 1.0%.
Therefore, the pair declined mostly because of the strong US dollar. The dollar index rose by more than 0.40% as the relentless rally of the US Treasuries eased. The ten-year yield declined to 1.46%, lower from last week’s high of above 1.55%. This happened after Democrats in the House of Representatives passed a $1.9 trillion stimulus package.
EUR/USD technical outlook
The daily chart shows that the EUR/USD price has formed a descending channel pattern. This channel is formed as a bearish flag pattern. In technical analysis, this pattern is usually bullish. The price is also slightly below the 15-day and 25-day exponential moving averages. Therefore, while the price could drop further in the near term, there is a possibility of a bullish breakout happening later this month. So, you can practice this pattern in a free demo account.