Euro and Sterling Strengthen After Volatile Support Tests

EUR/USD and GBP/USD have moved into recovery mode following a sharp test of key support levels, although the market remains cautious ahead of the release of important macroeconomic data from the US, the eurozone and the UK. Earlier this week, the European currencies came under pressure: GBP/USD fell towards the 1.3300 area, while EUR/USD tested support at 1.1600. However, the successful defence of these levels triggered active profit-taking on the US dollar and a subsequent corrective rebound in the European currencies.

In the coming trading sessions, investors’ attention will focus on the publication of PMI business activity indices in the eurozone, the UK and the US, as well as US housing market data and jobless claims statistics. The market is assessing signs of a further slowdown in the US economy following recent indications of weakening business activity, which is partly limiting the potential for further dollar appreciation.

EUR/USD

The EUR/USD pair recovered after testing support at 1.1600. Technical analysis of EUR/USD points to the possibility of growth towards 1.1670–1.1700, as a bullish piercing candlestick pattern has formed on the daily timeframe. Should yesterday’s low be broken, the pair may decline towards the 1.1540–1.1500 area.

Key events for EUR/USD:

• today at 10:15 (GMT+3): France Manufacturing PMI;
• today at 10:30 (GMT+3): Germany Composite PMI;
• today at 15:30 (GMT+3): Philadelphia Fed Manufacturing Index (US).

GBP/USD

The GBP/USD pair fell sharply at the start of the week towards the important support level at 1.3300. The rebound from this support, followed by a recovery towards 1.3440, allowed a bullish engulfing reversal pattern to form. Technical analysis of GBP/USD suggests the potential for further growth towards 1.3520–1.3550 if the pair manages to consolidate above 1.3460. A move below yesterday’s low could trigger another test of 1.3300.

Key events for GBP/USD:

• today at 11:30 (GMT+3): UK Composite PMI;
• today at 16:45 (GMT+3): US Manufacturing PMI;
• today at 18:00 (GMT+3): speech by Bank of England Governor Bailey.

Overall, EUR/USD and GBP/USD are attempting to extend their recovery after sharply testing key support levels. However, the market has yet to receive sufficient fundamental confirmation for the formation of a полноценный upward trend. Upcoming macroeconomic data from the US, the eurozone and the UK will be the key driver of further price action: weak US figures could increase pressure on the dollar and support further gains in the European currencies, while stronger data may return the market to a bearish scenario and keep trading confined within established ranges.

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