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- EUR/USD recovers mildly above 1.1030 with US NFP on horizon
EUR/USD recovers mildly above 1.1030 with US NFP on horizon
- EUR/USD finds a temporary cushion near 1.1030 amid a slight correction in the US Dollar.
- The US Dollar falls as the US ISM Manufacturing PMI data signaled a contraction in activity for the fifth month in a row.
- Investors await the US JOLTS Job Openings data for July.
EUR/USD discovers buying interest in Wednesday’s European session after posting a fresh two-week low near 1.1025 on Tuesday. The major currency pair edges higher as the US Dollar (USD) corrects after the release of the United States (US) ISM Manufacturing PMI data for August. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls to near 101.60 after failing to reclaim a two-week high of 102.00.
The ISM Manufacturing PMI, released on Tuesday, came in at 47.2, missing estimates of 47.5 but improving from an eight-month low of 46.8. Despite the slight improvement, markets considered that the overall trend points to a slowdown as a figure below 50.0 suggests a contraction in manufacturing activity.
Amid a data-heavy week, investors keenly await the US Nonfarm Payrolls (NFP) data for August, which will be published on Friday. The official labor market data will shape the Federal Reserve’s (Fed) interest rate cut path for September. Investors seem to be confident that the Fed will start reducing its key borrowing rates this month, but are divided over the size of this potential rate cut.
The importance of the labor market data has increased significantly after the commentary from Fed Chair Jerome Powell at the Jackson Hole (JH) Symposium, who signalled that the central bank is very much concerned about weakening labor demand.
For more insights on the current labor market status, investors will also focus on the US JOLTS Job Opening data for July and the ADP Employment Change data for August, which will be published at 14:00 GMT and on Thursday, respectively.
The US JOLTS Job Openings report is expected to show that employers posted 8.1 million fresh job vacancies, marginally lower than the 8.184 million a month earlier.
Daily digest market movers: EUR/USD edges higher as US Dollar corrects
- EUR/USD recovers slightly in European trading hours amid a gradual correction in the US Dollar. The Euro’s (EUR) near-term outlook remains downbeat as market participants expect that the European Central Bank’s (ECB) policy-easing cycle could be aggressive given the steep decline in Eurozone inflationary pressures and weak economic growth.
- Economists at Bank of America (BofA) said in their latest report about the Eurozone: "We still see more cuts in 2025/26 than the markets are pricing, with a return to a deposit rate of 2% by 3Q25 (at the latest) and to 1.5% in 2026." BofA said that Europe's recovery remains fragile and it will likely be shallow, pressured by several economic factors such as slowing growth in China as well as politics.
- ECB officials also remain worried about increasing risks to Eurozone economic growth. ECB Executive board member Piero Cipollone said in an interview with a French newspaper said that there is a real risk that our stance could become too restrictive," adding that, "we must ensure that inflation converges to our target without holding back the economy unnecessarily," Reuters reported.
- On the economic front, investors await the Eurozone Retail Sales data for July, which will be published on Thursday. Economists estimate the Retail Sales to have grown by 0.1% after contracting 0.3% in June on a monthly as well as an annual basis. A slight improvement in sales at retail stores would be insufficient to dampen market speculation that the ECB will resume its policy-easing cycle this month, which it started in June, after pausing in July.
- In today’s session, investors will focus on the Eurozone Producer Price Index (PPI) data for July,w which will be published at 09:00 GMT. The PPI report is expected to show that prices of goods and services at factory gates were deflated at a slower pace of 2.5% from 3.2% in June. A sharp deflation in producer prices indicates a sharp slowdown in the overall demand. This would prompt expectations of ECB rate cuts in September.
Technical Analysis: EUR/USD strives for firm footing near 20-day EMA
EUR/USD recovers slightly after posting a fresh two-week low near 1.1025. The near-term outlook of the major currency pair is uncertain as it struggles to gain firm footing near the 20-day Exponential Moving Average (EMA) around 1.1020.
The longer-term outlook is still bullish as the 50-day and 200-day EMAs at 1.0964 and 1.0850, respectively, are sloping higher. Also, the shared currency pair holds the Rising Channel breakout on a daily time frame.
The 14-day Relative Strength Index (RSI) has declined below 60.00 after turning overbought near 75.00.
On the upside, the recent high of 1.1200 and the July 2023 high at 1.1275 will be the next stop for the Euro bulls. Meanwhile, the downside is expected to remain cushioned near the psychological support of 1.1000.
Euro FAQs
The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, 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 Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.
Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, 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 but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if 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 especially significant, as they account for 75% of the Eurozone’s economy.
Another significant data release 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 over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.
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