Euro/USD Rally gains momentum after strong EU retail sales and services PMI

EUR/USD rally accelerated today following strong retail sales and better service PMI from the European Union. The pair is trading at 1.2125, up 14% from the year-to-date low of 1.0630.

EUR/USD Rally Continued
European retail sales increased in October

In a report released today, Eurostat said retail sales volumes rose 1.5% in October as the region continued to recover from the pandemic. This monthly increase was better than the 1.7% decline in the previous month.

Sales grew at an annualized rate of 4.3%, which is also better than the 2.5% increase in the previous month. Economists surveyed by Reuters expected sales to increase by 2.7%.

Food and non-food sales rose by 2.0%, while automotive fuel declined by 3.7%. Among the best performing countries were Denmark, Croatia and France, while Slovenia, Slovakia and the Netherlands came in last.

Nevertheless, analysts expect sales to decline in November as the number of Covid cases in Europe continued to increase. As a result, many countries such as France and Germany introduced slight lockdowns to prevent the spread.

Contracts in the service sector

The EUR/USD pair also rose due to the better service provided by the PMI. As expected by most analysts, the European services sector shrank in November as a rather unimportant sector. This included companies such as restaurants, cafes and bars, which are among the leading employers in Europe.

According to Markit, the purchasing managers’ index for services (PMI) fell to 41.7 in November, the lowest level since May. It was also the third consecutive month in which the PMI remained below 50, a sign of the decline in the industry.

The composite PMI, which includes the service and manufacturing industries, also fell to 45.3 in November, with the best performing countries being Germany, Ireland, Italy and Spain. With the exception of Germany, the PMIs of the other countries were below 50, Markit said in a statement:

“The relative resilience of the services sector partly reflects manufacturing spillover demand for transportation and other support services to industry, but also reflects the easing of restrictions compared to the beginning of the year”.

The EUR/USD exchange rate also rose due to the overall weakening of the US dollar. The dollar fell to its lowest level since April 2018, when demand weakened.

Technical Outlook EUR/USD
Technical Table EUR/USD

On the weekly chart, the EUR/USD has rallied strongly and is now at its highest level since April 2018, and has also moved above its short and medium term moving averages, which is another sign of the strength of the euro. As you can see in your Real or Forex demo account, the Relative Strength Index (RSI) is close to overbought levels. As a result, the pair is likely to continue its rally in the near future, as bulls are targeting the 1.2555 high in February 2018.