A series of Purchasing Managers’ Index (PMI) data points was released in Europe on Tuesday, including manufacturing and services PMIs for Germany, France, and the Euro area as a whole. All of these data points showed continued economic expansion, and, with the exception of French manufacturing, showed better-than-expected improvement in economic sentiment.
Meanwhile, the US dollar staged an extended rebound on Tuesday, as speculation continued to brew over a possible rate hike by the Federal Reserve at its next meeting in mid-March. Fed officials, including Chair Janet Yellen, have publicly pushed for raising interest rates sooner rather than later.
Despite the better-than-expected Eurozone data on Tuesday, EUR/USD continued to be pressured on a stronger US dollar as well as fears surrounding the upcoming French presidential election, which will be held two months from now. Concerns have surfaced that anti-EU nationalist candidate Marine Le Pen could be narrowing the gap with the centrist front-runner, Emmanuel Macron. An upset victory by Le Pen could put at risk the future of both the European Union and the euro shared currency.
Overall, EUR/USD continues to trade within a strong bearish trend, both on a long-term and shorter-term basis. The month of January saw a sharp upside pullback for the currency pair, but that rally broke down in early February, leading to the current downturn in the direction of the larger bearish trend.
Currently, EUR/USD has closely approached major support to the downside around the key 1.0500 level. With continued dollar support ahead of March’s Fed decision, and euro pressure ahead of a hotly-contested French election, EUR/USD is likely to remain pressured overall in the medium-term. A breakdown below 1.0500 support should open the way for further downside momentum towards the 1.0350-area support lows hit in late December and early January. Any further breakdown below that area would confirm a continuation of the longer-term downtrend, with a strong psychological target at parity (1.0000).