Sterling clocked a fresh 7-year low of 1.3835 on Monday before the corrective forces took control and ensured the spot ended the day higher at 1.3912. USD selling gathered pace in the NY session after the Chicago PMI figure showed the manufacturing sector recession worsened in February. The housing data was weak as well. Still, the pair backed off from 1.3946 to end the day at 1.3912 levels. The spot traded on a front foot in Asia; and now attempting to take out previous day’s high.
Eyes UK PMI manufacturing report
Consensus estimates say we are in for another month of slowdown in the manufacturing activity. The headline figure is seen at 52.2 as against January’s 52.9. Cable could see a knee jerk reaction on the higher side if the actual figure is higher than estimates. The currency is oversold and is looking out for reasons to correct.
The focus would also be on the details- new orders index (new orders from abroad) and employment index. A strong overseas order inflow could be an indication of exports picking up pace in next month (i.e. in March/April).
In case, the PMI prints below estimates Sterling could re-test the 7-year low of 1.3835 set on Monday. Traders should also take a note of the fact that PMI is nearing 50.00 levels. A weaker-than-expected figure could push the headline dangerously close to contraction territory.
Technicals – Bullish RSI divergence confirmed on daily chart but support at 1.3924 should prevail
Bullish price RSI divergence on the daily chart followed by a break above 1.3924 (50-MA + 76.4% Fibo expansion of July 2014 high-April 2015 low-June 2015 high) indicates the corrective rally could be extended to 1.40 – 1.4032 (23.6% of 1.4669-1.3835) levels.
On the other hand, A failure to sustain above key support zone of 1.3924 – 1.3920 (5-DMA) followed by a break below the falling trend line support on the hourly chart at 1.3886 would shift risk in favor of a drop to fresh 7-year low below 1.3835.
EUR/USD Analysis: EUR to track German bond yields ahead of ECB
The EUR/USD pair fell to a low of 1.0859 levels on Monday before recovering slightly to end the day around 1.0872. The common currency was offered across the board after the preliminary Eurozone CPI reading for February missed estimated by a big margin. Not only the headline CPI, but even the core figure was way below what economists had expected. The drop in the core figure heightened speculation of a more aggressive easing by the ECB next week.
Expectations surrounding next week’s ECB rate decision
Markets believe a 10 basis point cut in deposit rate is a done deal. Reuters survey of 18 economists revealed the same
A significant majority also expects the bank to expand its QE program by EUR 10-30 billion. But economists polled by Reuters have said the probability is at coin toss levels.
Focus on German bond yields
The PMI manufacturing figure due for release today across Eurozone, if weaker-than-expected, could add to speculation that ECB would act more aggressively next week.
The immediate effect of such speculation should be evident in the German bond yields. The 2-yr yield has already priced-in a 10bps deposit rate cut. The 9-year yield is in negative and the 10-yr yield is just 10bps away from Zero.
The sell-off in EUR could continue if the 2-yr yield drops to fresh record lows below -0.575% and the 10-yr yield drops below 0.049%. If the yields remain resilient, an uptick in EUR could be seen; especially if the equities remain risk-off.
Technicals – Sell-off could continue below 1.0868
Euro’s bearish break from the rising trend line on the daily closing basis, followed by a bearish closing below falling trend line (extended) support on Monday has opened doors for a 1.0750 levels.
The daily RSI, below 50.00, is also in support of a continuation of a bearish trend.
However, bullish Price-RSI divergence on the hourly chart could see the spot re-test hourly 50-MA at 1.0919.
Overall, the pair is likely to be offered on upticks as long as we do not see a daily closing above rising trend line level of 1.0982.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended Content
Editors’ Picks
EUR/USD extends recovery beyond 1.0400 amid Wall Street's turnaround
EUR/USD extends its recovery beyond 1.0400, helped by the better performance of Wall Street and softer-than-anticipated United States PCE inflation. Profit-taking ahead of the winter holidays also takes its toll.
GBP/USD nears 1.2600 on renewed USD weakness
GBP/USD extends its rebound from multi-month lows and approaches 1.2600. The US Dollar stays on the back foot after softer-than-expected PCE inflation data, helping the pair edge higher. Nevertheless, GBP/USD remains on track to end the week in negative territory.
Gold rises above $2,620 as US yields edge lower
Gold extends its daily rebound and trades above $2,620 on Friday. The benchmark 10-year US Treasury bond yield declines toward 4.5% following the PCE inflation data for November, helping XAU/USD stretch higher in the American session.
Bitcoin crashes to $96,000, altcoins bleed: Top trades for sidelined buyers
Bitcoin (BTC) slipped under the $100,000 milestone and touched the $96,000 level briefly on Friday, a sharp decline that has also hit hard prices of other altcoins and particularly meme coins.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.