EUR/USD is closing the week in the red. For the first time in a few weeks, the decline is triggered by weakening of the single European currency. In fact, the USD advance is of secondary importance here. A series of PMIs for the eurozone discouraged traders as all of them logged lower scores that signals a slowdown in the economic recovery. Besides, EUR/USD is trading under pressure on the back of the Brexit saga. The talks between London and Brussels have come to a stalemate again, though the parties were optimistic about the trade deal not long ago, sending a message about a breakthrough. Unfortunately, this has not happened. Brexit negotiators had to admit the impasse. In response, the sterling plummeted immediately, dragging down the euro from its record highs. Such fundamental background enabled the euro bears to test the level of 1.17, though the downward momentum was muted in the early New York trade.
Let's start with European statistics. Today, the Market research group published PMIs for the key European economies, which were mostly in the "red zone". For example, in France, the manufacturing PMI declined and again crossed the threshold 50-point mark, reaching 49 points. For two months - in June and July - this index posted an increase in the manufacturing business activity. But the August result was disappointing: contrary to the expected growth to 53 points, it fell below the key level. A similar situation has developed in the service sector: the indicator slipped to 51.9 points, while in July it jumped to 57 points. German figures showed mixed dynamics: in the manufacturing sector, the PMI index rose to 53 points to the strongest level on a year, but in the service sector, it dropped to 50.8 points, defying the forecast for a significant increase to 55 points. The pan-European PMI indices followed the trajectory of the French indicators: in the manufacturing sector, the indicator fell to 51 points (after growing by almost 53 points), the services PMI dropped to 50.1 points almost to the threshold level. The fresh data put bearish pressure on the single currency, despite the rise in the German manufacturing PMI.
Besides, Michel Barnier, the chief Brexit negotiator of the EU authorities, added to the overall strain. Today he held a press conference at which he summed up the results of the latest round of the talks. In essence, the policymaker stated the lack of progress in these negotiations. Barnier admitted that the British side is too adamant "to his surprise" and does not tolerate any compromise. Therefore "it will not be easy to agree." He also made it clear that the parties failed to come to the common denominator on key points of the deal. A little later, his colleague from the British side, David Frost, held his press conference, where he voiced similar rhetoric, only of a "mirror" nature. In particular, he said that the European Union continues to insist that the UK should agree with the policy of state aid and with the policy in the field of fisheries.
Importantly, at the beginning of August there were rumors that Brussels might compromise in the negotiations with London. According to Reuters, Europe is ready to soften one of its key demands on Britain - the requirement to adhere to EU rules on state aid. According to unofficial information, Brussels is considering a dispute resolution mechanism that will allow London to fully control the cash injections and tax breaks for UK companies after a transition period at the end of this year. Thus, Britain will not have to adjust to EU requirements under equal competitive terms.
The provision on ensuring fair competition along with fisheries policy are the main stumbling blocks in the negotiations between London and Brussels. Therefore, the lack of progress on these issues is a legitimate concern - both for traders of GBP/USD and for traders of EUR/USD.
From a technical point of view, the pair has not completed its correctional decline. The bears broke the 1.1800 support level, thus pushing the price below the average line of the Bollinger Bands indicator on the daily chart. The next support level is located at the lower line of this indicator (on the same timefras low as 1.17 even before the end of Friday trade.
