EURUSD Retreats Below 1.10 Again After Soft Eurozone Services

Friday saw a significant upward rally in EURUSD, breaking through 1.09 while today EUR/USD broke the 1.10 barrier, but has pulled back now. Even the slight bullish gap in the pair’s opening last night supports the current bullish bias. Buyers of EUR/USD must overcome various resistance zones, including 1.0950, 1.0980, 1.10, and higher, as the price maintains its momentum.

EUR/USD Chart Daily – MAs Held As Support This Time

Last week, a disappointing US ISM Manufacturing PMI, a dovish FOMC meeting, and Friday’s underwhelming NFP report boosted EUR/USD , with the US unemployment rate rising by 2 points in July. The Federal Reserve’s meeting on Wednesday was dovish, as expected. Fed Chair Powell hinted at a September rate cut and left open the possibility of “several” rate cuts before the year ended. The market has now fully priced in three rate cuts before the end of the year, with the likelihood of a 50 basis point cut in September continuing to rise.

Despite Germany’s and the eurozone’s economic downturn, the EUR has remained stable recently. However, the market anticipates a 75 percent chance of a rate cut in September and 60 basis points of monetary policy easing before year-end, driven by fears of a US recession. The daily chart shows that EUR/USD recovered from a moving average convergence point below 1.08, but buyers will still need to put in significant effort given the Eurozone’s fragile economy.

Eurozone July final services PMI released by HCOB – 5 August 2024

• • July final services PMI: 51.9 points (prelim: 51.9 points)
  • June services PMI: 52.8 points
• Composite PMI:
  • July final: 50.2 points (prelim: 50.1 points)
  • Prior Composite PMI: 50.9 points

Despite France’s growth spurred by the Olympic games, the Eurozone economy is expected to fall flat in July. The ongoing manufacturing crisis remains a significant drag, and the services sector is also slowing, which concerns the ECB as inflation pressures stay high in Q3. According to HCOB:

“The eurozone’s economy is barely growing in July. Services aren’t accelerating like earlier in the year, and the industrial slump persists. As a result, the HCOB Composite Output PMI is just above the expansion line. Although the second half of the year started weak, the PMIs and official economic growth numbers for Q2 were surprisingly good. Thus, our 0.7% growth forecast for the year remains conservative.

“The slowdown in the service sector is evident. The PMI has fallen for three consecutive months to 51.9, companies are hesitant about hiring, and new business growth is minimal. The boost from events like the European Football Championships in Germany, the Olympics in France, and Taylor Swift’s concert tour in Europe is fading. Therefore, the service sector is unlikely to significantly boost the economy in the second half of the year.

“Inflation relief is still elusive. Although sales prices are rising at the slowest rate in 38 months and input costs are generally stable, inflation remains high given the weak economy. Historically, selling prices have stayed flat on average when the PMI activity index was at 52.0 or lower, and input prices rose much more slowly. This suggests that wage pressure due to demographic changes is making it harder for the ECB to achieve its 2% inflation target.

“The services sector slowdown is widespread across the eurozone. Growth has decelerated in Germany, Italy, and Spain. France is the exception, with a rising PMI, but even there, the sector’s growth is minimal and still lags behind other countries.”

Eurozone Sentix Investor Confidence Released by Sentix – 5 August 2024

• Eurozone August Sentix investor confidence -13.9 points vs -8.0 points expected
• July Sentix investor confidence was -7.3 points

EUR/USD Live Chart