EUR/USD prediction as Eurozone business activity rises to a 15-year high

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Jul 5, 2021
  • The EUR/USD tilted upwards after the strong Eurozone services and composite PMI data.
  • The services PMI increased to 58.3 while the composite PMI rose to a 15-year high.
  • Analysts at ING expects that the pair will drop to 1.1800 this week.

The euro (EUR/USD) held steady as investors reacted to the relatively weak US dollar and the strong Eurozone services PMI data. It is trading at 1.1870, which is about 0.52% above the lowest level last week. 

Eurozone services PMI data

The recent Eurozone economic and sentiment data has been relatively strong recently because of the ongoing reopening. The unemployment rate has fallen while business activity has improved.

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In a report, Markit said that the services PMI remained unchanged comfortably above the expansionary level of 50. This happened as companies like Spain and Ireland eased their restrictions leading to strong demand for their services. At the same time, operating expenses in the service sector increased at the fastest pace since 2008. This growth was because of higher wages and fuel and utility prices. 

Meanwhile, the composite PMI also did well in June. The number, which combines the manufacturing and services indexes, rose to a 15-year high of 59.5. It was also the fourth consecutive month of increases. In a note, Chris Williamson of Markit said:

“A wave of optimism that the worst of the pandemic is behind us has meanwhile propelled firms’ expectations of growth to the highest for 21 years, boding well for the upturn to gain further strength in coming months.”

The EUR/USD is tilting upwards also because of the relatively weaker US dollar. The dollar index has dropped by more than 0.20% as investors continue reacting to the latest US employment numbers. The data showed that the US created more than 850k jobs in June while the unemployment rate rose to 5.9%.

The EUR/USD will react to the latest German industrial production data that will come out on Wednesday this week. It will also react to the latest FOMC minutes that will give more details about the future of rate hikes.

EUR/USD technical analysis

EUR/USD
EUR/USD chart

The hourly chart shows that the EUR/USF tilted upwards earlier today. It is trading at 1.1870, which is above the important psychological level of 1.1800. The pair has also formed a small inverse head and shoulders pattern. It is also along the 25-day and 15-day moving averages (MA). Also, it has moved above the Ichimoku cloud. Therefore, there is a likelihood that the pair will keep rising in the near term and then drop to the 1.1800 level. In a note, analysts at ING wrote:

“We think EUR/USD could break below 1.1800 later in the week on the FOMC minutes, since it is hard to put the Fed tightening genie back in the bottle now.”

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