Key Insights
- EUR/USD remains near 1.0850, with the Euro constrained by weak European data and recession fears, while the US economy shows resilience.
- ECB likely to cut rates again in September, while the Fed’s upcoming decision is eagerly anticipated.
- Technical analysis suggests a neutral-to-bullish stance, with key support at 1.0800 and resistance at 1.0947.
EUR/USD Fundamental Analysis
The foreign exchange market has been closely watching the EUR/USD pair, which has been treading water in the 1.0850 region as July draws to a close. While the US Dollar started the week with a strong showing, its momentum waned following the release of key US economic data that boosted market sentiment.
On the European side, the economic picture remains somewhat bleak. The Euro’s potential for upward movement was constrained by lackluster data from the continent, highlighting the growing risk of a recession. The Hamburg Commercial Bank’s latest report indicates that the private sector is teetering on the brink of stagnation as we enter the third quarter. This is evidenced by the disappointing flash Purchasing Managers Indexes (PMIs), which came in below expectations. Moreover, the situation in Germany, Europe’s economic powerhouse, is particularly concerning, with its private sector economy slipping back into contraction.
In light of these developments, the European Central Bank (ECB) finds itself in a precarious position. Despite ongoing inflationary pressures, the ECB has opted to trim rates, with a second cut likely on the horizon in September. This decision underscores the bank’s growing concern about the possibility of an unmanageable recession.
Shifting our focus across the Atlantic, the economic landscape in the United States paints a more optimistic picture. Recent data suggests that the US may not only avoid a recession but could potentially sidestep even a soft landing. The S&P Global flash PMI data revealed that business activity growth in the US has accelerated to its fastest pace in 27 months, with the services sector continuing to outperform manufacturing.
Furthermore, the preliminary estimate of the Q2 Gross Domestic Product (GDP) exceeded expectations, showing the economy grew at an annualized rate of 2.8%. This robust growth was accompanied by a moderation in inflationary pressures, as evidenced by the core Personal Consumption Expenditures Price Index.
Looking ahead, market participants are eagerly anticipating the Federal Reserve’s upcoming policy decision. While interest rates are expected to remain unchanged, investors are hoping for signals that might pave the way for a potential shift in September.
EUR/USD Technical Analysis
Turning our attention to the technical analysis of the EUR/USD pair, the weekly chart presents a neutral-to-bullish stance. Technical indicators have lost directional momentum but remain in positive territory. The 20 and 100 Simple Moving Averages (SMAs) are providing dynamic support and resistance levels, respectively.
The daily chart offers a more optimistic outlook for bulls. Technical indicators have bounced from their midlines, showing modest upward slopes. The 20 SMA has been providing reliable dynamic support, with the pair demonstrating resilience on dips below this level.
Key support for the pair lies at the 1.0800 level, with a break below potentially exposing the 1.0740 area and subsequently 1.0660. On the upside, the main resistance is situated at 1.0947, the monthly high, followed by the psychologically significant 1.1000 mark. A breakthrough above this level could see the pair testing 1.1080 and potentially pushing towards 1.1140.
