EUR/USD March 24 – France giveth, Germany taketh away

EUR/USD  started the new week on a path of recovery, and got a boost from positive French PMIs. The effect was short lived though, as a slowdown in Germany held it back. The ongoing tension in Ukraine is also watched and so is China, as the quarter draws to an end. Can the common currency grind back up towards 1.40?

Here is a quick update on the technical situation, indicators, and market sentiment that moves euro/dollar.

EUR/USD Technical

• EUR/USD began the week quite slowly, around 1.38.

Current range: 1.3740 to 1.38.

Further levels in both directions:

• Below: 1.3740, 1.37, 1.3650 and 1.3560.
• Above: 1.38, 1.3894, 1.3940, and 1.40
• 1.3740 is the new important support line.
• The round number of 1.38 is minor resistance. Real resistance is at 1.3830.

EUR/USD Fundamentals

• 8:00 French Flash Services PMI. Exp. 47.9. Actual 51.4
• 8:00 French Flash Manufacturing PMI. Exp. 49.8. Actual 51.9.
• 8:30 German Flash Services PMI. Exp. 55.8. Actual 54.
• 8:30 German Flash Manufacturing PMI. Exp. 54.7. Actual 53.8. The euro reacted with a downfall.
• 9:00 Euro-zone Flash Services PMI. Exp. 52.6. Actual 52.4.
• 9:00 Euro-zone Flash Manufacturing PMI. Exp. 53.2. Actual 53 points.
• 13:45 US Markit  Flash Manufacturing PMI. Exp. 56.6 points.
• 14:00 Belgian NBB Business Climate. Exp. -5.1 points.

*All times are GMT

For more events and lines, see the  Euro to dollar forecast.

EUR/USD Sentiment

• More even growth?: France was already called “the sick man of Europe”, but the recent figures show that France is picking up while Germany is slowing down. The convergence is improving. The recovery in the euro-zone is still quite fragile though and the German locomotive is needed.
• Chinese worries: Yet again, the  HSBC Flash Manufacturing PMI for China fell short of predictions, showing faster contraction. This is a worry for German exports. On the other hand, flows from China into the euro-zone keep the euro bid.
• Yellen talk boosts dollar:  This FOMC meeting was dramatic. The decision to trim QE by another $10 billion  was widely expected, but her comments  at the follow-up press  conference gave the dollar a big boost against its major rivals.  Yellen said that the  Fed was on track to wind up QE in the fall,and  could  start to raise interest rates six months later.  This is a more aggressive approach towards higher rates than the markets had expected, and  the dollar responded with a surge across the board, resulting in  EUR/USD breaking below uptrend support.
• Some better US figures: After a long streak of disappointments,  the Philly Fed index came out better than expected  and also  jobless claims remained on lower ground. It will still take time for the skies to clear over the weather distortions related to the US data.
• The Draghi cap: With the recent fall, EUR/USD is far from the round 1.40 line. As we’ve seen,  ECB president did not hesitate to talk the euro down  once it got close to these levels. This “verbal resistance line” counters Chinese flows into the euro-zone.
• Ukraine crisis in the news, not in markets: Western countries and Russia are exchanging sanctions in response to the crisis and to one another but no mobilization of troops is seen anywhere. The euro-zone and especially Germany have too much to lose from a conflict and de-escalation seems the order of the day.