Buyers keep pressure ahead of critical US employment data

• Easing price pressures in the United States weighed on the US dollar ahead of the weekly close.
• Warm European data puts the European Central Bank between a rock and a hard place.
• EUR/USD maintains its bullish tone in the medium term, although buyers are still hesitant.

The EUR/USD pair ends a week of almost uneventful trading near the 1.1200 mark, still struggling to conquer the level. It managed to post a new 2024 high of 1.1213 mid-week, but the sellers around it rejected EUR/USD once again.

Concerns about European economic progress, or rather the lack of it, as well as growing speculation that the United States (US) Federal Reserve (Fed) may maintain its aggressive approach to interest rate cuts, have kept investors in a cautiously.

What happened

EUR/USD struggled for direction most of the week as tepid European macroeconomic numbers kept the euro’s gains capped despite overall weakness in the US dollar (USD).

The Hamburg Commercial Bank (HCOB) Eurozone Purchasing Managers’ Index (PMI) for September came in worse than expected, signaling a continued pullback in the region. The German economy sank “deeper into contraction”, according to the official report, as the composite PMI fell for a fourth straight month to 47.2 from 48.4 in August. The manufacturing index eased to 40.3, while services output barely held within expansionary limits, falling further to 50.6 from 51.2 previously.

In addition, the EU composite PMI fell to 48.9, missing the 50.6 expected, with the manufacturing sector the worst performer. “The decline in production was the first in seven months and was recorded against the background of a sustained reduction in new orders. In fact, new business fell at its strongest pace since January,” according to HCOB.

Meanwhile, Germany’s IFO Business Climate Survey fell to 85.4 in September from 86.6 previously, with both expectations and the assessment of the current situation deteriorating.

The news prompted speculation that the European Central Bank (ECB) will need to keep cutting interest rates to avoid a recession.

Things were not much better in the US. The S&P Global PMI showed manufacturing output contracted in September, although the services index was broadly steady at a strong 55.4.

Also, the Conference Board’s (CB) consumer confidence index unexpectedly fell to 98.7 in September after reading 105.6 in August. Even more, the Present Situation Index fell 10.3 points to 124.3, while the Expectations Index fell 4.6 points to 81.7 but remained above 80. Readings below this usually anticipate a recession. As a result, market participants raised bets that the Fed could cut interest rates by another 50 basis points (bps) in November.

By the end of the week, however, US data was slightly more encouraging. The country confirmed Q2 Gross Domestic Product (GDP) at 3% as previously estimated, while Durable Goods Orders were broadly unchanged in August, better than the 2.6% decline anticipated.

Finally, on Friday, the country released the Price Index for Personal Consumption Expenditure (PCE). The Fed’s preferred inflation gauge rose 2.2% year-on-year (YoY) in August, slightly below market expectations of 2.3%. On a monthly basis, the PCE Price Index rose 0.1%, in line with analysts’ forecasts. At the same time, the core PCE price index rose 2.7% from a year ago, while the monthly increase was 0.1%, below expectations.

Finally, US consumer confidence improved in September, with the University of Michigan’s consumer sentiment index rising to 70.1 from 67.9 in August. This reading was above market expectations of 69.3. “Sentiment appears to be building some momentum as consumer expectations for the economy improve,” the report said.

EU inflation and US employment in the spotlight

The focus shifts to Europe early next week as Germany and the eurozone will release preliminary estimates of the Harmonized Index of Consumer Prices (HICP) for September.

Until Wednesday, investors will look to US employment data. The country will release the ADP Employment Report, showing the number of private jobs created in September. The United States will also release various labor market numbers ahead of the Nonfarm Payrolls (NFP) report on Friday, a key indicator of the overall labor market that may hint at the Fed’s next monetary policy decision.

Meanwhile, the US will release the ISM Manufacturing Purchasing Managers (PMI) and Services PMI for September.

By the end of the week, market participants will have a clearer picture of the state of the US economy and will therefore take positions accordingly.

EUR/USD Technical Outlook

Risk for EUR/USD is leaning to the upside, according to technical readings on the weekly chart. The pair made a higher high and a higher low, usually reflecting the dominance of buyers. At the same time, it continues to develop above all its mobile media. The 20 and 100 simple moving averages (SMA) are heading north below the 1.0900 level, while a mildly bearish 200 SMA provides dynamic support around 1.1040. Finally, the technical indicators remain well above the midlines, although they are losing their upside. They are currently consolidating near overbought readings, but with no signs of upside exhaustion.

The daily chart shows that EUR/USD could extend gains, but is conditional on a clear break above the 1.1200 level. A bullish 20 SMA grinds higher around 1.1100, providing dynamic support. Meanwhile, the 100 SMA extends its advance above a flat 200 SMA well below the shortest, reflecting persistent upside pressure. Finally, the Momentum indicator is aiming north well above the 100 level, while the Relative Strength Index (RSI) indicator is consolidating around 59, which is not enough to confirm a bullish course.

EUR/USD could find support around 1.1050 if the 1.1100 region gives up, before falling towards the 1.1000 level. On the other hand, a clear break above 1.1200 could see the pair initially moving towards 1.1240 and then towards the 1.1300 region with a longer-term target of 1.1470.