FX.co ★ 24.05.2022: EUR and GBP to withstand USD. Outlook for EUR/USD and GBP/USD.

Yesterday, comments provided by representatives of the ECB and the US Fed led to a deeper drop in the US dollar. Today, the PMI preliminary estimates caused the market reversal.The fact is that the data turned out to be below the already gloomy forecasts. Thus, the eurozone services PMI declined to 56.3 points from 57.7 points, whereas economists had expected a smaller drop to 57.5 points. The manufacturing PMI slumped to 54.4 points from 55.5 points instead of falling to 55.0 points. As a result, the composite PMI tumbled to 54.9 points from 55.8 points, whereas analysts had foreseen a decrease to 55.0 points. In the UK, the situation is even worse. That is why the British pound showed a more significant drop. The fact is that the services PMI collapsed to 51.8 points from 58.9 points instead of declining to 58.5 points. The manufacturing PMI displayed even worse performance. It slid to 54.6 points from 55.8 points, whereas economists had anticipated a minor decline to 55.2 points. Thus, the composite PMI slumped to 51.8 points from 58.2 points mainly due to the services PMI. The composite PMI should have fallen to 58.0 points. Nevertheless, at the beginning of the US trade, the currencies may return to the levels recorded before the publication of the eurozone PMI figures. The fact is that US business activity is expected to decrease in every sphere. It is quite possible that the real data will be worse than the preliminary estimates. Let us look at the trading charts. The euro/dollar pair broke the resistance level of 1.0636, thus prolonging the upward correction from the local low of 1.0349 recorded in 2016. The euro has gained more than 340 pips since the correction began.At the moment, the bullish sentiment is still in force. This is proved by the fact that the euro/dollar pair reached a new peak of the correctional movement. If the price consolidates above 1.0700, it may climb to 1.0800. Meanwhile, the pound/dollar pair surpassed the resistance level of 1.2500 and continued its upward correction. The current appreciation in the pound sterling is the strongest since December 2021. This fact could be explained by a very long drop, which led to overheating of short positions. A technical drop, that we see at the moment, may cause the pound sterling’s depreciation. However, if the price returns to 1.2500, the volume of long positions may surge.

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