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  • EUR/USD’s repeated failure to close above 1.11 is a cause for concern for the bulls.
  • A flag breakdown on the 4-hour chart could be seen if Germany’s PMI prints below estimates.

EUR/USD is on the defensive ahead of the release of all the all-important flash German and Eurozone  Purchasing Managers’ Index (PMI)  readings for the month of August.

The common currency’s sell-off from the Aug. 5 high of 1.1250 ran out of steam at lows near 1.1066 on Aug. 16. However, the bulls have not been able to capitalize on the seller exhaustion. Notably, a close above 1.11 remained elusive for the third straight day on Wednesday.

Further, the pair has created  a bear flag pattern, a bearish continuation setup, on the 4-hour chart. So, it seems safe to say that the common currency is trading on slippery ground.

Eyes PMIs

Germany’s Markit Manufacturing PMI, scheduled for release at 07:30 GMT, is expected to show the activity fell deeper into contraction territory in August. The PMI is expected to ease to 43.0 from July’s reading of 43.2. Meanwhile, Markit Services PMI (Aug) is seen easing to 54.0 from 54.5.

The European Central Bank is already under pressure to ease more and the dovish expectations would be bolstered if the German manufacturing PMI prints below estimates. In that case, the EUR/USD pair may drop below 1.1065, confirming a bear flag breakdown on the 4-hour chart.

On the higher side, a daily close above 1.11 is needed to weaken bearish pressure. That could happen if both the German and Eurozone manufacturing PMIs (due at 08:00 GMT) beat estimates by a big margin.

It is worth noting that the minutes of the Federal Reserve’s July meeting released on Wednesday showed the policymakers were reluctant to start a full-blown easing cycle. So, forcing a convincing break above 1.11 is going to be a tough task for the EUR bulls.

Also, the Italian political uncertainty and the weakness in China’s Yuan could complicate matters for EUR/USD. As of writing, the pair is trading at 1.1084, having hit a high of 1.1092 in the Asian session.  

Technical levels