EURUSD slips on deteriorating flash PMIs

In a previous article we suggested that constrained economic activity in the Euro Area was negatively impacting the EURUSD and influencing ECB policy. As such, the currency pair is likely to be sensitive to economic releases. Whilst the central bank has inflation foremost on its mind, the level of Euro Area slowdown cannot be ignored. Flash PMIs that were released today continue to indicate a challenging environment, implying contraction in both the manufacturing and services sectors.

Manufacturing, in particular, is fragile with Germany's PMI at 39.1 and the general EU PMI at 43.7. However, services are contributing to the weak outlook too. Germany's flash services PMI was expected to show expansion at 51.5, but printed in contraction territory at 47.3, and the general EU flash services PMI was 48.3, less than the 50.6 expected. A reading below 50 is considered contractionary, whilst above 50 is expansionary.

The ECB's options appear to be shrinking in the face of this weakness. As a result, EURUSD declined and has charted a lower trough (LT) on its weekly chart. This has effectively ended its series of higher troughs, followed by higher peaks. Moreover, the weekly RSI is now on the bearish side of 50 (blue rectangle), implying an underlying bearish momentum on a longer-term basis. The 1.0800 level is the next important psychological support for the currency pair, which coincides with the 40-week simple moving average (200-day SMA).