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EUR/USD Breaking This Key Support Could Spark a Major Drop

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Aayush Jindal

Key Highlights

  • EUR/USD topped near 1.1965 and started a fresh decline below 1.1850.
  • There was a break below a key ascending channel with support near 1.1870 on the 4-hours chart.
  • The Eurozone Manufacturing PMI declined from 51.8 to 51.7 in August 2020 (Preliminary).
  • The US Manufacturing PMI increased from 50.9 to 53.6 in August 2020 (Preliminary).

EUR/USD Technical Analysis

This past week, the Euro surpassed the 1.1920 resistance against the US Dollar. However, EUR/USD failed to test the 1.2000 resistance and formed a short-term top near 1.1965.

Looking at the 4-hours chart, the pair started a fresh decline from the 1.1965 high and broke the 1.1920 support. There was also a break below a key ascending channel with support near 1.1870.

It opened the doors for more losses below the 1.1850 support and the 100 simple moving average (red, 4-hours). The pair traded below the 50% Fib retracement level of the upward move from the 1.1711 low to 1.1965 high.

The pair even broke the 1.1800 support and tested the 76.4% Fib retracement level of the upward move from the 1.1711 low to 1.1965 high. The main support on the downside is near the 1.1700 level, below which there is a risk of a larger decline.

The next key support is near the 1.1650 or the 200 simple moving average (green, 4-hours), followed by the 1.1580 support. Conversely, the pair could start a fresh increase from the 1.1700 support level. On the upside, there are many hurdles, starting with 1.1840 and 1.1850.

Fundamentally, the Eurozone Manufacturing PMI for August 2020 (Prelim) was released this past Friday by the Markit Economics. The market was looking for an increase from 51.8 to 52.9.

The actual result was disappointing, as the Eurozone Manufacturing PMI declined from 51.8 t 51.7. More importantly, the Services PMI declined sharply from 54.7 to 50.1 and just managed to stay in the expansion zone.

The report added:

August saw a loss of growth momentum across the eurozone private sector, according to provisional PMI® survey data, following a rebound from the coronavirus disease 2019 (COVID-19) related downturn.

Overall, EUR/USD must stay above 1.1700 to start a fresh increase. Similarly, GBP/USD must hold the 1.3000 support region.

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