The euro was practically unmoved at $1.2117 this morning as Chinese manufacturing data gave some respite to risky assets.
However, the eurozone crisis continues to limit the upside for the common currency. Chinese PMI data showed a stronger reading of 49.5 for July from 48.2 in June, just below the reading of 50 which signals an expansion. However, news from the eurozone was not as heartening, with manufacturing contracting further to 44.1 in July from 45.1 previously. Germany, the eurozone's largest economy, showed a weaker reading of 43.3 in July.
Yesterday, Spain saw its yield curve flattening as short-term bond yields hit the roof, with the two-year yield shooting higher. This in turn led to contagion effects being felt in Italy as well, with Italian two-year government bond yields leaping from just below 4% on Friday to 4.7% yesterday, on fears that the crisis in Spain and Greece was taking centre stage once more and would spread to Italy.
According to the technical charts, EUR/USD appeared to be in oversold territory with a 14-day RSI of 30 (a level below 30 signifies oversold). The moving average convergence divergence (MACD) indicator was below the signal line, signifying a bearish trend for the common currency. The next level of support for the currency only comes in at $1.18, which has not been breached since 2006.