EUR/USD recovers intraday losses on surprisingly upbeat Eurozone PMI

VaselineAugust 22, 2024

0 5 minutes read

EUR/USD bounces back as Eurozone flash PMI for August beats estimates.
German PMI suggested that activity contracted at a faster pace in August.
The US dollar remains on a bearish trajectory with Fed Powell’s speech in focus.

EUR/USD bounces back after a slight dip to near 1.1130 in Thursday’s European session as the eurozone HCOB composite PMI for August unexpectedly rose to 51.2, beating economists’ expectations.

The report showed that the strong expansion came from robust growth in service sector activity. The PMI service expanded strongly to 53.3 from estimates and the previous release of 51.9. Conversely, the manufacturing PMI fell further to 45.6, less than the expected 45.8.

Commenting on the flash PMI data, Dr Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, said: “Growth comes largely from an increase in service activity in France, with the business activity index rising by almost five points , probably related to the buzz surrounding the Paris Olympics. However, it is doubtful that this momentum will continue in the coming months. Meanwhile, the overall pace of growth in the services sector has slowed in Germany, and the manufacturing sector in the euro area remains in rapid decline.”

The slowdown in the German economy signaled by PMI data is unlikely to weigh on market speculation about the European Central Bank’s (ECB) interest rate outlook. Markets generally expect the ECB to cut its key lending rates once again in the final quarter of this year, with price pressures expected to return to the bank’s 2% target next year.

Daily Market Motifs: EUR/USD remains firmly firm amid a fragile US dollar

EUR/USD is trading almost flat as the US dollar (USD) remains near a fresh 2024 low. The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is trading near 101.00. The outlook for the US dollar remains bearish as the Federal Reserve (Fed) looks set to cut interest rates in September.
This would be the Fed’s first dovish interest rate decision in more than four years. The US central bank has maintained a tight monetary policy stance since March 2022 to curb inflation.
Market speculation for a Fed rate cut strengthened as the “vast majority” of Fed officials believe easing policy in September is appropriate as inflationary pressures continue to ease further, according to Committee minutes Federal Open Market Committee (FOMC) on July 30. -31 political meetings. The FOMC minutes also showed that some policymakers were prepared to cut interest rates as early as July.
For more clues on the interest rate path, investors will focus on Fed Chairman Jerome Powell’s speech at the Jackson Hole Symposium (JH) on Friday, starting at 14:00 GMT. Investors will be paying attention to clues about the size of interest rate cuts in September and how much the Fed might cut them this year.
In Thursday’s session, investors will be keenly focused on the US S&P Global PMI data for August, which will be released at 13:45 GMT. The preliminary PMI report is expected to show that the composite PMI fell to 53.5 from 54.3 in July.

Technical analysis: EUR/USD is posting a fresh high so far at 1.1175

EUR/USD is trading mid-range on Wednesday as investors focus on Fed Powell’s speech at the JH Symposium on Friday. The major currency pair is expected to continue its four-day winning streak as its outlook strengthened as it trades close to its year-to-date high near 1.1175.

Earlier, the common currency pair consolidated after a channel formation breakout in a daily time frame. All short-term and long-term exponential moving averages (EMAs) are sloping higher, suggesting a strong uptrend.

The 14-day Relative Strength Index (RSI) is hovering in the bullish range of 60.00-80.00, suggesting strong upside momentum. However, the chances of a corrective pullback increase as the momentum indicator is in overbought territory.

After a decisive break above the December 28, 2023 high at 1.1140, Euro bulls aim to recover the resistance at the round level of 1.1200. On the downside, the round level figure of 1.1100 will act as a major support area.

Frequently asked questions about the euro

Euro is the currency for the 20 countries of the European Union that belong to the Eurozone. It is the second most heavily traded currency in the world after the US dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, representing an estimated discount of 30% on all trades, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

The European Central Bank (ECB) in Frankfurt, Germany is the reserve bank for the euro area. The ECB sets interest rates and manages monetary policy. The main mandate of the ECB is to maintain price stability, which means either controlling inflation or stimulating growth. Its main tool is raising or lowering interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of national banks in the euro area and six permanent members, including ECB President Christine Lagarde.

Eurozone inflation data, as measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric element for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, it forces the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its peers will typically benefit the euro as it makes the region more attractive as a place for global investors to park their money.

Data releases measure the health of the economy and can have an impact on the euro. Indicators such as GDP, manufacturing and services PMI, employment and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the euro. Not only does it attract more foreign investment, it may encourage the ECB to raise interest rates, which will directly strengthen the euro. Otherwise, if the economic data is weak, the euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are particularly significant as they account for 75% of the euro area economy.

Another important piece of information for the euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports in a given period. If a country produces highly sought-after exports, then its currency will only gain in value from the additional demand created by foreign buyers wanting to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.

VaselineAugust 22, 2024

0 5 minutes read

Daily Market Motifs: EUR/USD remains firmly firm amid a fragile US dollar

Technical analysis: EUR/USD is posting a fresh high so far at 1.1175

Frequently asked questions about the euro

Vaseline

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