EUR/USD outlook remains bearish as traders eye PMIs this week

In the FX market on Friday, the dollar continued to push higher against some currencies, while falling against other, after stronger-than-expected US retail sales data helped to lift it off its earlier lows. The big slump in the USD/JPY pair, on the back of Japan’s Finance Minister Kato stating that he will take appropriate action against excessive fluctuations in FX markets, meant that the dollar index would still end the day lower, although above April’s high of 106.51 level. Earlier in the day, the dollar had been down across the board, but the release of stronger US retails sales triggered a sharp recovery in the greenback against currencies such as the CAD, GBP, and to a lesser degree, EUR. As a result, the EUR/USD held above 1.0500, but closed below its April low of 1.0600. The EUR/USD outlook remains bearish as we look forward to a new week.

Technical EUR/USD outlook

The lower lows and lower highs can only mean one thing: the trend on the EUR/USD is bearish from a technical point of view. In the short-term, 1.0600 is now the most important resistance level to watch, having served as support in the past. Key support comes in at 1.0500.

The EUR/USD has reached oversold levels, as indicated by the RSI on the daily time frame. The recovery we saw after it tested the 1.05 level on Thursday came as no surprise. This level had been my primary downside target. While the potential for another oversold rebound is there, I wouldn’t put my bullish cap on just yet, not until the chart tells me otherwise.

The key question on Friday was whether the downtrend had resumed. By the end of the day, the euro came dangerously close to breaking below the 1.0500 mark, setting the stage for a potential move toward the October low of 1.0448. But it held its own above 1.0500. Still, with the bearish macroeconomic backdrop in place, further declines seemed plausible. In other words, the EUR/USD outlook remains bearish.

Looking ahead to the week: Global PMIs among handful of key events

The upcoming week is a bit quieter on the macro side, but we do have the PBOC’s rate decision on Wednesday where the Chinese central bank could surprise again with a potential cut, even if analysts don’t expect such a move. The big data for the week comes on Friday, November 22, when the global flash PMIs are released. Concerns about demand have intensified in recent weeks, with Trump’s plans to impose tariffs on China and the Eurozone likely to exacerbate those fears when he comes to office. These latest PMIs will reveal the current state of the manufacturing and services sectors’ health of major economies, in particular the eurozone, putting all sorts of risk assets into focus, including the EUR/USD. Unless we see a surprise improvement in eurozone data, it is difficult to see a long lasting bounce on the exchange rate give then current market dynamics.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R