The euro continues its rally amid reports that the Fed is maintaining its aggressive monetary policy, which increases the demand for risky assets. In addition, the dollar is weakening due to the uncertainty surrounding the upcoming US presidential election.
The improving data on the US services sector has led to a new wave of growth in the euro against the US dollar. Many traders expect that the crisis caused by the coronavirus will soon subside, and the recent reports, including those on the manufacturing sector, confirm this. According to the report released by the IHS Markit, the indicator of activity in the US services sector recovered in June 2020, but still remained in a negative territory below 50 points. Unfortunately, the recent removal of quarantine restrictions, as well as the opening of the economy, have led to new outbreaks of COVID-19 in many states, and this will negatively affect the data on activity this summer. The report indicated that the final PMI for the US services sector limited to 47.9 points in June, up from its preliminary value of 46.7 points. Economists expected the data to come out the same as the preliminary forecast. Nevertheless, index values above 50 indicate an increase in activity, while values below 50 indicate a decrease in activity. A further increase in activity now depends not only on the re-opening of companies, but also on the restoration of consumer demand, which could decline sharply if the number of coronavirus infections continues to increase.
Meanwhile, the ISM also published a report on the US non-manufacturing sector, which revealed that in June 2020, the PMI rose from 45.4 points to 57.1 points. Economists expected the index to rise to only 50.1 points. As for the sub-indices, new orders grew to 61.6 points, while employment reached only 43.1 points, remaining in the territory of reduction. Nevertheless, all aspects are improving, which provides good support to the economy. In addition, the Conference Board revised the index of employment trends yesterday, changing it to 45.27 for May, while in June it was already at 49.05 points. This indicates an improvement in the situation on the labor market.
Thus, for the current technical picture of the EUR / USD pair, the continuation of the upward trend will depend on how the bulls manage the support level of 1.1290. If they succeed in keeping the area, the EUR / USD pair will see a new wave of growth in the trading charts, which will lead to a repeated test of yesterday's high and its breakdown, pushing the quotes to the levels 1.1390 and 1.1430. But if the quotes move instead to the level of 1.1290, there is no need to panic, since the support level of 1.1250 remains, in which the lower border of the upward channel formed on July 1 passes.
GBP / USD
As for the British pound, the currency continues to trade sideways amid the improving data on the composite PMI in the UK manufacturing sector. The report published yesterday revealed that the PMI for the manufacturing, service and construction sector in the United Kingdom rose to 39.8 points in June, up from its 32.0 points in May. However, it is still below the value of 50 points, which indicates a decrease in activity.
Meanwhile, Finance Minister Rishi Sunak is scheduled to deliver a report tomorrow, during which he will discuss the current problems that the UK faces with regards to employment and emergency benefits. The program for which is expected to be extended tomorrow, which will limit the surge and delay unemployment in the future.
Hence, for the technical picture of the GBP / USD pair, everything remains unchanged, in which the resistance level 1.2530 still hinders the bulls from increasing the value of the pair. If the quotes successfully go beyond the said level, the pair will move up and may update the highs of 1.2610 and 1.2680. But if there are no active purchases on last week's highs, it is best to wait for the test of the support level 1.2440 to make sure that large players are present at this level. Meanwhile, the task of the bears will be to break through the level of 1.2440, as it will lead to a quick sell-offs of the EUR / USD pair in the area of lows 1.2385 and 1.2320.
AUD / USD
Today, the RBA announced that it will leave its key interest rate unchanged at 0.25%, which led to the slight strengthening of the AUD/USD pair. It also upheld its target yield level for 3-year government bonds at 0.25%, saying that soft policy will be pursued as long as necessary. In addition, during his speech, RBA Governor Philip Lowe said that the level of economic uncertainty will remain elevated due to the coronavirus pandemic, as some key regions of the country still observe a huge risk of a re-outbreak and re-introduction of quarantine measures. Thus, the board will not consider raising interest rates until progress towards full employment was achieved.
The recently published data on activity in the Australian services sector, as well as consumer confidence, validated the actions and approach of the RBA. According to a report, the service activity index of Australia fell to 31.5 points in June, indicating a significant decrease in activity. Consumer confidence also fell by 1.0% over the week, and the report indicated that the sub-index of the assessment of current economic conditions fell by 2.2%, while the assessment of future economic conditions fell by 2.7%.
Thus, on the technical picture of the AUD / USD pair, the upward trend will continue even if the quotes breakout of the resistance level 0.6960. Such will lead to new yearly highs in the area of 0.7065, or possibly to its renewal, going up to the levels 0.7105 and 0.7180. But in the case of a downward correction, large support is visible at 0.6840.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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