The euro was coming under increased pressure to break lower following the publication of further soft Eurozone data this morning, with investors also dumping stocks, government bonds and commodities amid ongoing concerns over trade wars and slowing economic activity. Meanwhile, the first day of European Parliamentary Elections has begun with polls suggesting Le Pen’s National Rally party is leading Emanuel Macron in France, serving as a reminder that (far) right-wing politics is on the rise in Europe. The EUR/USD hit its lowest level since the end of April at just below 1.1130. At the time of writing, the exchange rate was bouncing slightly off its lows, awaiting fresh impetus from the US session.
Eurozone data disappoints
There was more bad news from the Eurozone this morning, with business confidence in Germany dropping to its lowest level in more than four years in May according to a closely-watched survey, while the latest Manufacturing Purchasing Managers’ Indices (PMIs) also disappointed.
The Ifo Institute’s business climate indicator fell to 97.9 from 99.2 in April, disappointing analyst expectations and casting fresh doubt over the health of the Eurozone’s largest economy. Ifo economists pointed out that exports remained weak and business uncertainty high, and there was no recovery in sigh for the auto sector.
Meanwhile the latest German Flash Manufacturing PMI also missed the mark at 44.3 compared to 44.9 expected and 44.4 last. A reading below 50 indicates economic activity in the sector is contracting. Although French purchasing managers reported a slight improvement in the sector (50.6 vs. 50.0 last), the wider Eurozone’s manufacturing PMI remained under pressure, printing 47.7 compared to 47.9 last and 48.2 expected.
Weak global demand, political uncertainty in Europe and geopolitical risks concerning the US, China and Iran are among the factors weighing on business sentiment.
Series of lower lows and lower highs for EUR/USD…
From a technical point of view, the EUR/USD continues to drift lower with increasingly shallower retracements, suggesting the sellers are gaining control. Indeed, the slopes of both the 50- and 200-day moving averages are starting to get steeper, in a further (objective) bearish development.
After taking out a short-term trend line, the EUR/USD has today broken support around 1.1150, a level which had provided mild rebounds over the past few days. This level is now the first resistance that the bears will need to defend if we are to see a new 2019 low below 1.1111 soon (very likely in our view).
For the bearish bias to become invalidated again, we will need to see the formation of a key reversal pattern, or a break above an old swing high. Until that happens, the path of least resistance will continue to remain to the downside, even if we are to see small bounces here and there.