Night view of cozy street with tables of cafe in Paris, France. Architecture and landmarks of Paris. Postcard of Paris. Image source: Ekaterina Belova © 123RF.com
The outset of the coronavirus crisis in 2020 revealed the fragility of European industry as global supply chains started breaking under the pandemic fallout. European economies' massive dependence on the services sector exposed deeply rooted inefficiencies.
The response of the countries within the Eurozone was to move towards digitalisation, which would help stave off ripples from future economic shocks. This process manifests itself in the concerted effort to stabilise the services sector, which is already starting to show results.
The results can also be seen in the massive rally of the euro.
EURJPY 1D Price Chart. Image source: Trendsharks ©, created with TradingView.com
As can be seen on the daily chart above, the EURJPY, which is one of the currency pairs that have been affected the most by this, currently finds itself in a solid uptrend.
The rally takes the form of an ascending channel comprised of three separate legs, the third one being developed at present. The different stages are underpinned by the MACD indicator.
So far, the uptrend's development has progressed in a classic way - initial resistances eventually get broken, and they subsequently turn into supports. While this elucidates the strength of the underlying bullish commitment, the market may be due for a correction.
The MACD is due for a bearish crossover, which could result in a dropdown to the next psychological barrier - the 23.6 per cent Fibonacci retracement level at 130.718. A deeper correction may probe the 38.2 per cent Fibonacci retracement level at 128.988. This would depend on whether the price manages to break down below the ascending channel's lower boundary first.
Emphasis on services rather than manufacturing
Euro Area's manufacturing PMI fell marginally in May to 62.8 index points from April's 62.9. Even still, this performance exceeded the initial forecasts, which were anticipating a bigger drop to 62.5 index points.
Eurozone Manufacturing PMI. Image source: TradingEconomics.com
Manufacturing is being partly sidelined as preferential treatment is being given to services, which can be seen on the graph below. The sector expanded by 55.1 index points in May, which exceeded greatly the consensus forecasts.
They were projecting a much smaller growth of 52.5 points from the 50.5 points that were recorded over the previous month. May's performance is due to a sizable uptick in business activity, as economies within the Eurozone area are opening up again.
Eurozone Services PMI. Image source: Trendsharks ©, created with TradingView.com
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