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Read on to take a look at our current outlook for the euro-dollar currency pair.
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Downtrend intact, but retracement due
The EURUSD pair finished marginally unchanged, sitting around the May/June support level all week. The hawkish hold statement from the Fed (Federal Reserve) did encourage some more USD buying but not enough to see a sustained move lower.
Price action on Thursday and Friday saw a lot of EUR buying followings lightly better-than-expected PMI numbers from Europe. Considering USD is near overbought levels, a retracement higher on EURUSD could well be on the cards
Next week will be all about inflation numbers from Europe for the month of September, with both the headline and core number expected to come in lower than August. We wait to see what impact this will have on market pricing for any possible rate cuts in 2024.
Fed (Federal Reserve) officials will be speaking throughout the week, following on from last week’s Fed meeting to justify when they expect to raise interest rates next. We have final readings of US GDP for Q2 as well, with a minor upgrade expected. Friday’s income and spending report for August as well as the Core PCE inflation number will be key for USD on data side.
Last week, the May/June low continued to support the EURUSD pair with seemingly a lot of the negativity on the pair being priced in. Price action is suggesting a move to our 1st upside target before the longer-term downtrend continues.
EURUSD in downtrend channel
Last week, markets continued to sell the EUR following the ECB(European Central Bank) meeting, suggesting that the bank are now at the end oftheir rate hike cycle in lieu of stagflation concerns in the economy.
USD demand was also aided by the higher retail sales numbers.
Growth differentials continue to favour USD.
This week, the EUR has recovered some of the losses in early trade but the growth differential narrative will come under focus again on Friday, with the release of PMI activity numbers in September. The US composite PMI number is forecasted to show expansion, whilst in Europe, further contraction is expected.
Wednesday’s Fed (Federal Reserve) meeting is not expected to produce any fireworks, with markets not pricing in any rate hikes, but we’ll be paying attention to the accompanying rate statement and whether the Fed keeps the door open for further rate hikes in the future.
The May/June low supported EURUSD last week but looking at the fundamentals and technical on the chart, a push through this low will open up the pair to the lows seen in March.
Further losses to come?
With continued worries about the China economy, the EUR had a negative week falling through the longer-term uptrend, suggesting more losses could be seen on the pair. Continued demand for USD is also driving the pair lower towards “Support 1” levels.
For Europe, PMI numbers for Europe and German GDP numbers will be in focus, as well as any further data suggesting a decline in China’s economy.
The US dollar continues to be supported on the resilient economy narrative, as well as thoughts that interest rates will stay higher for longer. Both will be affected by August’s PMI numbers as well as Powell’s speech at the Jackson Hole Symposium on Friday.
Last week, the push through the longer-term uptrend opened up the possibility of further weakness on EURUSD and the fundamentals surrounding the concerns over China’s economy, as well as data mounting suggesting that the Fed (Federal Reserve) will keep rates higher for longer. A push through “Support 1” and we could see further declines to “Support 2”.
Resistance capping gains
EURUSD was flat on the week overall, with the pair trading in a very tight range but the EUR upside was capped at “Resistance 1” area. USD continues to be supported on risk aversion and growth prospects rather than rate expectations.
EU GDP readings are due out this week and the key for the EUR will be whether the numbers continue the trend from the UK and US, where growth for the second quarter came in higher than expected. Final inflation numbers are also due this week.
The US dollar has started the week higher on risk aversion, following more data illustrating the current problems with China’s property market. On the data side, US retail sales on Tuesday should be boosted by Amazon Prime Day, higher gasoline prices, and an increase in car sales, will likely illustrate the resilience of the economy. FOMC minutes will also be released on Wednesday evening.
Overall, demand for USD seems to be picking up at the “Resistance” area, which could well push the pair below the long-term uptrend that has supported the pair. A sustained breakthrough here opens up a move to “Support 1”.
September uptrend tested again
The continued demand for USD caused the EURUSD pair to hit the September uptrend, at which point we saw support for the EUR to pick up.
There is very little expected from the Eurozone this week, with only the final inflation numbers from Germany in focus, which is expected to remain at 6.2%.
The highlight for the week will be US inflation numbers on Thursday. Headline inflation is expected to rise to 3.3%, with the core number expected to remain at 4.8%. Anything to suggest that inflation is proving sticky may well increase bets of a rate hike in September and add to demand for USD.
With the September uptrend supported again last week, it seems markets will want to reposition themselves at more attractive levels before continuing the move lower. A move to “Resistance 1” could provide this level.
Test of “Support” levels to come?
A combination of dovish interpretation of the ECB (European Central Bank) meeting on Thursday along with higher-than-expected GDP numbers from the US added to a large drop on the EURUSD pair, which caused the prior support to turn into a level of resistance.
This morning, Eurozone numbers were released showing a surprise uptick on GDP numbers, with the economy growing 0.3% in Q2 compared to -0.1% in Q1. Core inflation remains sticky at 5.5%. The EUR is drawing support to start the week.
For the US this week it’s all about the job numbers and whether the data continues to support the resilient US economy narrative, therefore continuing to support USD gains. JOLTS job openings will be out on Tuesday, ADP payrolls and nonfarm payrolls on Wednesday, and unemployment rate and average hourly earnings out on Friday. PMI numbers will also be released and we’ll continue to monitor earnings amongst US corporations to gauge risk appetite.
Overall, the September 2022 EURUSD uptrend remains in play for now, but the dovish take from the ECB meeting now puts the EUR at risk of weakening further especially given the backdrop of concerns over the Eurozone economy. The battle of which economy is stronger than the other looks likely to drive markets, given both the Fed (Federal Reserve) and ECB are now in data dependency mode. Strong job numbers from the US this week should add to demand for USD and we seem likely to test the September 2022 uptrend line followed by a move to “Support 1”.
Past the peak?
‘Dovish’ comments from various ECB (European Central Bank) members suggesting that an interest rate hike in September is not guaranteed, dragged the euro down last week. The US dollar benefited from suggestions that the BoJ (Bank of Japan) will not change their monetary policy this week, as well as the greenback benefiting from lower risk appetite.
This morning, Eurozone PMIs pointed to an economy that is continuing to underperform and raises further doubt for the ECB (European Central Bank) to hike again in September. The ECB is widely expected to raise interest rates by 0.25% this Thursday, but it’s the guidance on future hikes that will be key for the euro. The week finishes with inflation numbers from France and Germany.
The Fed (Federal Reserve) meeting this Wednesday will be key. It’s largely expected that the Fed will hike by 0.25% and will hint that another hike could be on the cards, subject to incoming data. We’ll also be listening out for additional hawkish tones in the form of pushing back on the possibility of interest rate cuts in 2024 and sticking to their mantra of holding rates higher for longer.
US PMIs, Q2 GDP numbers, and core PCE inflation numbers will be in focus. Second quarter earnings from the likes of Microsoft, Google, and Meta will be out this week to give a gauge of risk appetite in the markets.
Overall, the EURUSD uptrend since September 2022 remains in play for now, but with markets narrowing UK-US interest rate differentials and a possible shift in risk appetite, we could already be past the peak in the exchange rate? A test of “Support 2” seems more likely at the moment, should the Fed meeting be received as hawkish and the ECB meeting as dovish.
Topside breakout and uptrend intact
The US disinflation narrative really took hold of the EURUSD pair, with price action breaking the 2023 high. The risk on appetite is also favouring the EUR at the moment, at the mercy of the safe haven USD. The prior 2023 high will now act as support on the pair, with no clear resistance until the February 2022 high which is roughly 2% higher.
This week, final revisions on June’s inflation numbers will be key for the EUR. Headline inflation is expected to ease to 5.5%, but core inflation is expected to remain at 5.4% which should keep the euro supported.
It’s set to be a quiet week on the US front, with no Fed speak expected ahead of next week’s interest rate decision and the only notable data point will be June’s retail sales numbers to give a gauge of how the economy is doing.
Staying rangebound
Trading on the EURUSD pair remains rangebound between “Support 1” and “Resistance 1” as interest rate differentials between Europe and the US have stabilised. Whilst rates stay beneath “Resistance 2”, the potential for downside on EURUSD following breach of the September uptrend remains in play with drops below “Support 2” and “Support 3” to suggest further accelerated downside.
German and Spanish inflation will be in focus this week alongside the minutes from the latest ECB (European Central Bank) meeting. ECB speak continues to be hawkish but should the data point to slower inflation, the 0.50% worth of additional rate hikes being priced in could be erased which would be negative for EUR.
US inflation numbers on Wednesday will be key for price action on USD. On Friday, USD weakened substantially following payroll numbers, falling short but worth noting that with wages climbing higher. There is evidence to suggest inflationary pressure may well persist. Evidence to support the Fed (Federal Reserve) needing to hike interest rates an additional two times or more, could see USD supported.
Downtrend to continue?
This week June’s uptrend broke, with the market starting to believe the Fed’s (Federal Reserve) hawkish narrative, narrowing the interest rate differentials between Europe and the US.
For the downtrend to continue, we’ll need to see further demand for USD between the upper band of this downtrend change or even near the “Resistance 1” area. A push through “Support 1” opens the prospect of hitting “Support 2”.
PMI numbers are the only significant data points from Europe this week, but as they are final numbers we would expect minimal impact on any EUR moves.
A busy week from the US is expected, with key focus on the resilience of the US economy. Both Services and Manufacturing PMIs are due for release along with the monthly payroll numbers. Wednesday evening’s minutes from the latest Fed meeting will be key to gauge the hawks amongst the Fed.
Overall, moves on the EURUSD pair will largely be drawn from US data points this week. Anything to suggest that the US economy is performing strongly should add to demand for USD, continuing the EURUSD downtrend.
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