EUR/USD forms bullish flag after mixed EU retail sales data

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 Aug 4, 2021
  • The EUR/USD price formed a bullish flag pattern on the 4H chart.
  • Data by Eurostat showed that retail sales rose by 1.5% in June.
  • The services and composite PMI rose to 58.3 and 59.5.

The EUR/USD price was little changed on Wednesday after the latest Eurozone retail sales and services PMI numbers. The pair was trading at 1.1857, where it has been in the past few days.

Eurozone retail sales and PMI

The retail sector is a major employer in the Eurozone. The sector is also a good measure of consumer spending, which is the biggest component of the GDP. Therefore, investors and policymakers pay a close attention to the performance of the sector.

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According to Eurostat, retail sales in June increased by 1.5% as countries continued to reopen. This increase was lower than the median estimate of 1.7%. As a result, the sales rose by 5.0% on a year-on-year basis, which was better than the median estimate of 4.5%. 

Meanwhile, the EUR/USD reacted to the relatively strong Eurozone services PMI data. According to Markit, the services PMI increased from 58.3 in June to 59.8 in July. This increase was slightly below the median estimate of 60.4. The services sector is an important part of the Eurozone since it is the biggest employer.

As a result, the composite PMI rose from 59.5 in June to 60.2 in July. The composite PMI also includes activity in the manufacturing sector. A PMI figure of 50 and above is usually a sign that an industry is growing.

These numbers show that the reopening and the vaccination trend has had a good impact on the bloc. However, with the Covid-19 cases rising, there is a possibility that this growth will start slowing down.

Looking ahead, the next catalyst for the EUR/USD pair will be the US employment numbers. The data is expected to show that American employers continued to add thousands of jobs while labour shortages remained.

EUR/USD technical forecast

EUR/USD

The EUR/USD pair has been in a tight range recently. On the four-hour chart, the pair has formed a bullish flag pattern, which is usually a bullish sign. It has also moved above the important support at 1.1830, which was the highest level on July 22. The pair is also along the 25-day and 50-day moving averages. 

Therefore, it will likely bounce back higher as investors target the next key resistance level at 1.1950. However, a drop below 1.1800 will invalidate the bullish view.

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