Despite the decline in Eurozone Preliminary Manufacturing PMI, the EUR/USD currency pair maintained its bullish bias and continuously gained positive traction above 1.0850, mainly due to the bearish US dollar. The US dollar has been losing its traction despite expectations of prolonged higher interest rates by the Federal Reserve (Fed).

However, the decline in the US dollar can be linked to the risk-on market sentiment, which tends to undermine safe-haven assets like the US dollar. Meanwhile, traders have pushed back expectations on when the Fed will begin cutting rates to June as officials caution that they want to see more evidence that inflation will continue to decline.

Mixed Eurozone PMI Data and its Impact on EUR/USD Pair

On the Euro front, the Eurozone and German Purchasing Managers Index (PMI) data for February showed mixed results. The preliminary Eurozone and German Services PMIs exceeded expectations, indicating growth. However, the Manufacturing PMIs fell below market expectations, showing a contraction in the sector.

On the data front, Eurozone Manufacturing PMI for February was 46.1, lower than the expected 47.0, indicating further contraction. However, the Services PMI rose to 50.0, showing expansion. The Eurozone Composite PMI reached 48.9, higher than the expected 48.5, indicating overall growth. In Germany, the Services PMI improved to 48.2, beating expectations, while the Manufacturing PMI declined to 42.3, below expectations. The German Composite PMI decreased to 46.1.

Therefore, the mixed Eurozone PMI data had a modest impact on the EUR/USD pair, with bullish sentiment supported by stronger-than-expected services PMIs but tempered by weaker manufacturing figures.

US Dollar Under Pressure Despite Fed’s Hawkish Stance

Despite the hawkish stance taken by the Fed, the US dollar is struggling to attract bids and still flashing red. Some officials revealed their cautious approach toward rate cuts in the minutes from the January FOMC meeting. They are hesitant to reduce rates too soon and want to be certain that inflation is decreasing before considering such actions.

This suggests that the Federal Reserve will likely keep rates higher for a longer period. The chance of a Fed rate cut dropped for March to 4.5% and for May to 29.8%. June’s likelihood slightly decreased to 52.2%, while July saw an increase to 37.4%.

Traders are anticipating possible rate cuts to begin in June, which has led to higher US Treasury bond yields. This increase in the 10-year bond yield is the highest since November 30, but it failed to bolster the US Dollar, providing additional support to the currency pair.

EUR/USD Technical Outlook

The EUR/USD pair is currently trading at $1.0806, reflecting a market in search of direction. The pivot point, illustrated by the green line at $1.07985, represents the currency pair’s immediate equilibrium, with the price hovering just above.

This level serves as a fulcrum around which traders are aligning their strategies. Immediate resistance for the pair is positioned at $1.08389, followed by higher ceilings at $1.08635 and $1.08962, which could restrict upward movements.

Conversely, support levels are found below the pivot point, with the first at $1.07800, providing a cushion against potential declines, and subsequent ones at $1.07713 and $1.07653 offering deeper layers of defense.

Technical indicators give a mixed signal. The Relative Strength Index (RSI) is at 52.04, indicating a neutral market sentiment. The Moving Average Convergence Divergence (MACD) hovers around the baseline, with a current value narrowly below the signal, pointing to a market indecision phase.

The 50-day Exponential Moving Average (EMA) at $1.07985 aligns with the pivot point, further underscoring its significance.