EUR/USD remarkable sell-off pauses but bearish sentiment remains

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 Nov 23, 2021
  • The EUR/USD pair has been in a remarkable sell-off.
  • The decline paused on Tuesday after the strong Europe PMI data.
  • The bearish momentum will likely resume in the coming days.

The EUR/USD pair stabilized on Tuesday as the market reflected on the relatively strong manufacturing and services PMI numbers from Europe. The pair was also reacting to the decision by President Biden to appoint Jerome Powell as the Fed chair. It is trading at 1.1247, which is a few points above this week’s low of 1.1225.

Eurozone output rises

The European Union has been in the spotlight this week as investors have focused on the ongoing Covid-19 surge. In the past few days, more European countries like Germany, Netherlands, and Austria have announced more Covid cases. As a result, countries like Austria have started lockdowns, which threaten to disrupt the recovery.

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On Tuesday, flash numbers published by Markit showed that the manufacturing and services sectors in the region did well in November. The bloc’s manufacturing PMI increased from 58.3 in October to 58.6 in November. This increase was better than the median estimate of 57.3. 

The services sector, which employs the most people in Europe, also did well in November. The PMI rose from 54.6 to 56.6, which was better than the expected 53.5. This performance helped to push the composite PMI to 58.6. 

This broad recovery was seen in most countries. For example, the manufacturing PMI rose to 57.6 in Germany and to 54.6 in France. A PMI figure of 50 and above is usually a sign that the sector improved.

Still, the EUR/USD has dropped significantly since investors believe that the ECB will be among the last banks to start tightening. Indeed, in recent statements, Christine Lagarde has hinted that the bank will likely not tighten in 2022 even as inflation remains a concern. 

Meanwhile, analysts expect that Jerome Powell will continue tightening interest rates in the coming months. 

EUR/USD forecast

EUR/USD

On November 10th, the EUR/USD pair managed to cross the key support level at 1.1527. This was an important level since it was the lowest level since October. The pair has dropped by more than 2.47% since then and is currently at the lowest level in more than a year. The pair has also dropped below the 25-day moving average, signalling that bears are still in control. At the same time, it has moved between the lower and middle lines of the Bollinger Bands while the Relative Strength Index (RSI) is slightly above the oversold level. Therefore, the pair will likely break out lower in the near term.

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