The euro has performed admirably in the past couple of weeks. However all could be about to change. This morning’s flash manufacturing PMIs have suggested that the forward looking data suggests the economies of the Eurozone remain under pressure. This could begin to drive a reversal of the recent gains that have been seen against the dollar and sterling.
German and French manufacturing PMIs remain under pressure, with decline on both. France remains in contraction with 47.6 (worse than expected) whilst Germany has worryingly dropped back to 50.0 which suggests that German manufacturing has stalled.
The euro has subsequently turned back from two key levels against the dollar and sterling. Resistance at $1.2600 has been key for a while against the dollar, whilst there is a key band of resistance between £0.8030/65 on EUR/GBP which marks the top of a 5 month range. The resistance band was tested yesterday and saw another failure, whilst today the euro has begun to underperform against sterling and the rate has fallen away. With RSI suggesting a ranging outlook, this could be a good time to start selling EUR/GBP, not only that you can also get a decent stop above the £0.8065 multi-month high too.
Similarly on EUR/USD which has rallied back towards the $1.2600 neckline (which was touched on a spike in the minutes following the FOMC meeting minutes yesterday evening) and also the resistance of the falling 3 month downtrend. There are now explicit momentum signals that point to an immediate sell signal on EUR/USD, however, daily momentum is configured to suggest selling into rallies. We have had a rally in the euro over the past two weeks and I still believe the selling pressure will resume in due course. The weaker PMIs this morning could easily bring about this trigger of underperformance.
The market has been convinced of sterling weakness for a while. Perhaps this is true against the dollar (both central bank meeting minutes were suitably non-dovish yesterday), whilst strong UK retail sales coupled with the weaker Eurozone PMIs could now begin to drive a re-pricing of EUR/GBP lower once more.