Welders. Image source: Southamerican_redneck, flickr.com
Factory activity in Germany fell in February while the services sector rebounded. This unevenly matched performance bolstered the underlying volatility on the euro, driving the single currency lower. To read more about its broader outlook, check out our latest analysis of the EURUSD pair.
Germany's industrial activity in February completely missed the market forecasts. Manufacturing contracted whereas the services sector beat the advance projections. This uneven performance across the two sectors is underpinned by the recently recorded deteriorating economic sentiment. Meanwhile, short-term bearish bias on the euro continues to ramp up.
EURJPY 2H Price Chart. Image source: Trendsharks ©, created with TradingView.com
The euro remains on the retreat against the Japanese yen, as shown on the 2H chart above. The price action appears poised to consolidate just above the 61.8 per cent Fibonacci retracement level at 130.129. This expectation is based on the apparent development of a Descending Wedge in the short term.
Descending Wedges typically indicate temporary breaks in an established uptrend, which is why a bottleneck is expected to emerge on the psychologically significant Fibonacci threshold, followed by a probable bullish rebound.
Notice also that the minor pullback that emerged over the last several hours was held back below the 50-day MA (in green) and 200-day MA (in orange), which is why the price action is now likely to head towards the lower limit of the Wedge once again.
The ultimate target for the eventual rebound would be the previous swing peak at 133.00, though bulls should watch out for potential reversals from the 38.2 per cent Fibonacci at 131.290 and the 23.6 per cent Fibonacci at 132.008.
Germany's seesawing industrial activity
Germany MoM Manufacturing PMI. Image source: TradingEconomics.com
According to Markit's findings, factory activity contracted to 58.5 index points in February following the 59.6 index points jump that was recorded a month prior, and below market forecasts of 59.8 points.
Services PMI was recorded at 56.6 index points, beating the preliminary forecasts of 53.2 points and jumping well above the 52.2-point growth rate that was underscored in January.
Germany MoM Services PMI. Image source: TradingEconomics.com
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