EUR/USD Price Analysis – Aug 05, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair gained bullish momentum and remained well-supported around the 1.0945 level despite disappointing Eurozone data.
This upward trend can be attributed to the weakening US dollar, which lost strength due to dovish sentiment surrounding the Federal Reserve’s policy stance.
Although the downbeat Eurozone data contributed to limiting further gains in the EUR/USD pair, the overall bearish outlook on the US dollar played a crucial role in driving the currency’s rise.
Looking ahead, traders will closely monitor the US ISM Services Purchasing Managers Index (PMI). Expected to rise to 51.0 in July from 48.8 in June, the PMI could significantly influence the market. A stronger-than-anticipated PMI might bolster the USD and potentially limit gains in other assets.
Impact of Weak US Labor Market and Dovish Fed Outlook on EUR/USD
On the US front, the US dollar struggled to gain traction and edged lower due to the Federal Reserve's dovish stance and weak employment data. Traders anticipate a 50-basis point rate cut in September and over 100 basis points in total this year, according to the CME FedWatch tool.
These expectations stem from disappointing US economic data, which suggest a slowdown and raise concerns about the possibility of a "soft landing" for the economy.
Meanwhile, the labor market is weakening, and the manufacturing sector is experiencing a sharp slowdown.
The July Nonfarm Payrolls report revealed a decline in labor demand and a rise in unemployment to its highest level since November 2021. This deterioration heightens the likelihood of rate cuts.
On the data front, US Nonfarm Payrolls increased by 114,000 in July, falling short of the 175,000 expected and down from 179,000 in June. The unemployment rate rose to 4.3%, the highest since November 2021, and Average Hourly Earnings grew by just 0.2%, below the 0.3% forecast.
Therefore, the weakening US labor market and lower-than-expected Nonfarm Payrolls may boost the EUR/USD pair, as dovish Fed expectations could weaken the USD and enhance the euro's appeal.
Impact of Eurozone Economic and Geopolitical Uncertainty on EUR/USD
On the Eurozone front, higher preliminary Harmonized Index of Consumer Prices (HICP) for July has cast doubt on potential European Central Bank (ECB) rate cuts in September. The Eurozone Sentix Investor Confidence Index dropped sharply from -7.3 in July to -13.9 in August, reflecting growing concerns.
In the meantime, the Expectations Index also fell from 1.5 in July to -8.8 in August. Sentix attributed these declines to worries about the fragile geopolitical situation, including issues in the Middle East, upcoming German state elections, and uncertainty surrounding the US presidential election later this year.
Therefore, the uncertainty over ECB rate cuts and declining Eurozone investor confidence could weigh on the EUR/USD pair, as concerns about economic and geopolitical instability may undermine the euro's strength.
EUR/USD - Technical Analysis
The EUR/USD pair is trading at $1.09566, showing a modest decline of 0.09% as investors react to mixed economic signals from both sides of the Atlantic.
The pair has recently navigated a challenging environment, with traders keeping a close eye on technical levels for clues about its next move.
The 4-hour chart reveals that EUR/USD is slightly above its pivot point of $1.0946, indicating a potential bullish outlook if it maintains support above this level.
Immediate resistance is observed at $1.0988, which could act as a hurdle for any upward movement. If the pair manages to break through this resistance, it may target further gains at $1.1022 and $1.1048.
On the downside, immediate support is positioned at $1.0892, with additional support levels at $1.0858 and $1.0822. Traders should monitor these support levels closely, as a breach could signal further bearish momentum.
The Relative Strength Index (RSI) stands at 73, indicating that the EUR/USD is currently in overbought territory. This suggests a possible correction could be on the horizon if the buying pressure eases.
Meanwhile, the 50-day Exponential Moving Average (EMA) is situated at $1.0852, offering dynamic support that aligns with the bullish sentiment observed in recent sessions.
Given the current technical setup, traders might consider buying EUR/USD above the entry price of $1.09457, aiming for a potential upside toward the target of $1.10107. To manage risk, a stop-loss should be placed at $1.08909.
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