This EUR/USD recovery looks foolish

• EUR/USD kicked off the week with a move to the upside.  
• Euro-zone inflation and two top-tier US figures dominate.
• The technical picture looks bearish for the pair.

EUR/USD began the week off the lows, escaping from the abyss of 1.1200. The world’s most-popular currency pair holds onto its small gains and did not close the gap.

The primary driver to the upside is upbeat Chinese data. Over the weekend, the official Purchasing Managers’ Index for the manufacturing sector came out at 50.5 points in March, above expectations and above the 50-point threshold separating expansion from contraction. The independent Caixin Manufacturing PMI also exceeded early projections and hit 50.8 points, even better than the government figures.

The forward-looking gauges provide some relief to markets and the upbeat mood supports the euro against the safe-haven US Dollar.

Can this continue?

PMIs are also released in the old continent, and they will serve as a reality check, likely confirming the slowdown. The preliminary German Manufacturing  PMI plunged to 44.7 points and the final figure, released shortly, will likely confirm it.

As PMIs from the large European countries are final ones, the focus will swiftly shift to the inflation data, which is projected to remain damp. Analysts are concerned that core inflation will not only remain low but could slip below 1%.

See:    Euro-zone inflation preview: A slip in Core CPI could add pressure to EUR/USD

The focus then shifts to the US. Before its own PMI is released, the Retail Sales report for February will grab attention. The puzzling plunge in sales in December is still a mystery to markets and January’s bounce still left many concerned about the accuracy of the data. A moderate gain is due now – a return to normality.

See:    US Retail Sales: Back to normal consumption? It could cheer markets, but not the USD

And as mentioned earlier, the ISM Manufacturing PMI will provide a snapshot on the industry and also serves as a hint towards Friday’s all-important  Non-Farm PAyrolls  report. The survey disappointed in February and is projected to pick up in March.

See:  ISM Manufacturing PMI Preview: How worried are businesses? 3 scenarios for the potentially contrarian USD reaction

At least for  EUR/USD, the data will likely overshadow Brexit news. The British government failed in its third attempt to approve the Brexit accord on Friday, albeit by a narrow margin. Another day of indicative votes is on the docket today, 11 days ahead of the new Brexit date. Significant movements are not expected today, but Brexit can always surprise.

EUR/USD Technical Analysis

Downside Momentum on the four-hour chart is waning, but other indicators remain bearish. The 50 Simple Moving Average crossed the 200 one to the downside and the Relative Strength Index is above 30, thus not pointing to oversold conditions.

All in all, it looks like a necessary correction within the downtrend.

Support is found at 1.1210 which was the low point on Friday. The next support line is the 2019 trough of 1.1186. The next lines are already from 2017: 1.1115 and 1.1025.

Immediate resistance is at 1.1250 that held the pair down on Friday. 1.1285 was another high point last week and it si followed by 1.1330 that limited any gains early last week.