The euro-dollar tested the seventh figure today against the backdrop of the disastrously failed PMI data. The indices turned out to be worse than even the darkest forecasts and became a clear contrast to the fairly good reports of the ZEW institute, which were published on Tuesday. Today's European releases are in the red zone, absolutely everything - without any encouraging exceptions. The EUR/USD pair did not continue to fall only due to the uncertain positions of the US currency and the unexpected statement by Merkel. In addition, traders are now waiting for the results of the online summit of EU leaders, so they are in no hurry to invest in short positions.
Nevertheless, today's European statistics served as another alarm bell. The published figures reflect the disastrous consequences of the coronavirus pandemic, while disputes between the south and north of Europe over crown bonds are still ongoing. The European currency quite naturally lost its position against this background, and not only in pairs with the dollar.
Thus, the German index of business activity in the manufacturing sector was forecast to fall from 45 points to 39, but eventually dropped to 34. The indicator is below the key 50-point mark since January 2019, which indicates a deterioration in the situation in this sector of the economy. The situation is even worse in the service sector. The corresponding PMI index was above the 50 level until February, but it fell to 31.7 points in March, and it collapsed to 15.9 points in April (a historical anti-record). Experts did not expect a different trend amid the global lockdown, but overall forecasts were more optimistic – according to analysts, the indicator should have fallen to 28 points. Similar indexes in France showed the same result – the index of business activity in the service sector there also updated the anti-record, falling to 10 points. The eurozone index of business activity in the manufacturing sector came out at 33 points (the worst result in the last 11 years), while it collapsed to 11.7 points in the services sector (again – a historical anti-record).
The European currency justifiably weakened amid such dynamics, making it possible for the EUR/USD bears to enter the seventh figure. After sellers sold the 1.0850 level, it was inevitable that the seventh price level would be put to a test. But bears need a more powerful informational occasion in order to gain a foothold in this price area. At the same time, the dollar is demonstrating its vulnerability amid a decline in risk appetite.
First, the United States Senate recently adopted another package of financial support for the economy worth almost $500 billion. The bill provides for the allocation of $310 billion for a small business income protection program, $75 billion for hospital funding, $25 billion for Covid-19 tests, and $60 billion for loans and grants. As expected, this bill will be supported today in the House of Representatives, after which it will be sent to Trump for signature.
In addition, relatively good macroeconomic data was published in the US today. However, it is incorrect to speak about today's figures in a positive context – the releases just turned out to be slightly better than forecasts, and this circumstance put pressure on the US currency. This reaction looks abnormal, but the fact remains that the greenback primarily reacts to the level of anti-risk sentiment (since it is used by the market as the main protective asset) and, second of all, to the dynamics of national macro indicators.
So, US data on the labor market and the index of business activity in the manufacturing sector (Manufacturing PMI) were published. It is noteworthy that both releases showed extremely negative results, but nevertheless encouraged by their trend.
Judge for yourself: the number of applications for unemployment benefits jumped to three million on March 26, then this figure rose to almost seven million, and it was at around 6.6 million the year before last. This indicator came out at the level of 5.2 million last week, and it reached the level of 4.5 million applications today. In this case, millions of values are not so scary: the trend itself is important. The downward trend against the backdrop of the Senate decision reassured investors, after which the demand for protective instruments (including the dollar) decreased. The US Manufacturing PMI was also better than expected. Experts predicted a significant decline of up to 31 points in April. However, the indicator showed a result of almost 37 points. And although the decline itself is record-breaking, the softer numbers had a beneficial effect on the market.
The oil market, which is showing growth today, pulled the stock market along with it - the main Wall Street indices opened in the green zone today, and the S&P 500 is trading above 2,800 points (at the time of writing these lines - at around 2831).
In other words, the general market sentiment looks optimistic, and this fact does not make it possible for dollar bulls to show character. In turn, the EUR/USD bears could not keep the pair within the seventh figure due to the euro's weakness - the price returned to the eighth price level after updating the low at 1.0756.
it is risky to open long or (especially) short positions in such conditions. For example, the mere statement by German Chancellor Angela Merkel that "the regional assistance program should be large-scale" instantly returned the EUR/USD pair to the eighth figure. This suggests that the results of the online summit of EU leaders can substantially redraw the fundamental picture for the pair - the price will either return to the seventh figure or rise to the resistance level of 1.0910. Therefore, at the moment, you are advised to take a wait-and-see attitude and carefully monitor European news feeds.
