The EUR/USD started the week with a bearish inclination.
Looking at the EUR/USD 4 hourly chart above, we observe that the currency pair plunged with relative ease breaking immediate supports. It is now consolidating along a support which is easily seen on the weekly chart.
In our weekly review we mentioned that a bearish momentum will likely attempt to test the lower bollinger band and it is indeed so.
As markets continue to open, the flood of liquidity may bring more decisive price action.
Further bearish pressure will send the EUR/USD down towards 1.11, setting up for a new low.
Should a bullish recovery emerge, 1.12 will be the immediate resistance.
The German and French flash services and manufacturing surveys came back mostly worst than expected. Germany in particular polled a 43.1 instead of 45.1 for the Flash Manufacturing PMI. A score below 50 indicates contraction. The Purchasing Managers’ Index is a survey of purchasing managers and is important as the sentiment of purchasing managers is a leading indicator of economic health. A healthy sentiment suggests that an economy is moving along well while a cautious sentiment may see less business activities due to prudence. This will likely weight down on the Euro currency considering that both Germany and France are significant economies of the region.
There are some speculation that the European Central Bank may start more quantitative easing measures as early as the upcoming main refinancing rate event this week. While highly speculative, it still adds to the negative sentiment.
We are expecting the Spanish unemployment rate and German Ifo Business Climate before the ECB event. Needless to say, we expect an impact to the euro currency that mirrors the actual economic data performance.