- A modest rise in services sector activity offset a contraction in manufacturing.
- The dollar is set for its weakest monthly performance in a year.
- Data confirmed a 0.1% contraction in Germany’s economy in the third quarter.
The EUR/USD outlook paints a bullish picture at the start of a new week as the euro holds steady, building on the momentum from Friday’s surge amid a weakened dollar. The dollar’s decline followed a mixed PMI report, creating an optimistic landscape for the Euro against the USD.
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Notably, S&P Global reported a modest rise in services sector activity, offsetting a contraction in manufacturing. However, the survey’s employment index dropped to 49.7 in the first contraction since June 2020, down from 51.3 in October. Consequently, the dollar was weak on Friday.
Furthermore, the dollar is set for its weakest monthly performance in the year. It is due to growing expectations that the Fed is done with raising interest rates and may start cutting them next year.
Separately, data on Friday confirmed a 0.1% contraction in Germany’s economy in the third quarter. Ruth Brand, president of the statistics office, noted, “The German economy started the second half of the year with a slight drop in performance.” Moreover, facing challenges like high energy costs and higher interest rates, Germany has been one of Europe’s weakest economies this year.
Additionally, the Bundesbank’s monthly economic report predicted a likely contraction in the German economy in Q4. However, there might be a slight improvement early next year. Meanwhile, German business morale improved in November.
EUR/USD key events today
- A new home sales report from the US
- A building permits report from the US
EUR/USD technical outlook: Bearish divergence points to potential price drop
On the technical side, the EUR/USD bulls are back in control after a false break below the 30-SMA. The price initially rose to the 1.0950 resistance level, where it paused, and bears resurfaced. Surprisingly, bears were strong enough to puncture the 30-SMA support. However, this downward momentum did not last as bears failed to sustain a move lower. Consequently, bulls returned and took back control by breaking above the 30-SMA.
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Currently, the price is facing 1.0950 resistance again. Moreover, the RSI is showing weaker bullish momentum. The price will likely fall to 1.0851 if the bearish divergence plays out.
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