On Monday, the euro and the British pound suffered heavy losses against the greenback. This was attributed to objective reasons. Recent data indicated an unexpected surge in US manufacturing activity in March, fueled by a sharp recovery in production and increased demand. According to the ISM (Institute for Supply Management) report, the manufacturing PMI rose by 2.5 points to 50.3 in March. Although it barely exceeds the 50-point threshold that distinguishes contraction from expansion, the data signaled the end of a 16-month decline in activity, surpassing all economists' estimates.
The index for new orders also returned to positive territory after falling in February, and the rate of employment decline in factories in March was less than the previous month. "Demand remains at the early stages of recovery, with clear signs of improving conditions," Timothy Fiore, who chairs the ISM's manufacturing business survey committee, mentioned in the report. According to him, production increased compared to January and February as companies began to expand again.
Nine industries reported growth in March, and procurement and supply management executives expressed optimism about production prospects. A sustained increase in orders illustrates stable consumer demand and business investments, suggesting significant progress by companies.
The ISM data also revealed that manufacturing inventories decreased at a slower rate than in February. The report noted a more rapid decrease in customer inventory levels in March, with the index dropping to a very low territory. Survey respondents reported that their companies' clients still experience product shortages in their inventories, considered a positive sign for future new orders and production. Meanwhile, foreign client orders, order volumes, and imports remained unchanged in March.
As mentioned earlier, all these factors supported the US dollar. A sharp increase in new orders and consumer demand is likely to spur inflation, which has recently shown signs of accelerating. This could hinder the Federal Reserve's plans to ease monetary parameters in the summer of this year.
Now let's move on to technical analysis. As for EUR/USD, demand for the euro remains low. Buyers should now consider regaining control of the 1.0745 level and then heading for 1.0770. A breakout of this marl will allow buyers to reach 1.0800. This scenario is possible but challenging without support from major players. The ultimate target lies at the high of 1.0830. In a bear case scenario, icreased trading activity from major buyers is only expected around the 1.0700 mark. If not, it would be wise to wait for the price to hit a new low at 1.0660 or go long from 1.0640.
As for GBP/USD, bears have completely taken over the market. Nevertheless, buyers have a chance to regain control of the market. They need to take over the nearest resistance level at 1.2575 to aim for 1.2610, above which it will be quite challenging to break. The most distant target is the 1.2710 area. If the price continues to fall, bears will attempt to take control over 1.2540. If they succeed, this would deal a severe blow to bulls' positions and drag the British pound down to the 1.2505 low and probably the level of 1.2480.