EUR/USD Price Analysis – July 24, 2024
Daily Price Outlook
During the European trading session, the EUR/USD currency pair struggled to gain positive traction, remaining under pressure around the 1.0845 level and hitting an intra-day low of 1.0825.
The downward trend can be attributed to the preliminary Eurozone Hamburg Commercial Bank (HCOB) PMI report for July, which showed an unexpected easing in composite numbers. This was driven by a slowdown in both manufacturing and services, putting pressure on the EUR/USD pair.
The weak economic activity in the Eurozone is expected to boost expectations of more rate cuts by the European Central Bank (ECB).
Furthermore, the renewed strength of the US dollar, supported by recent developments in the US presidential elections, was another key factor affecting the EUR/USD pair.
However, growing expectations that the Federal Reserve may begin a rate-cutting cycle in September could limit gains in the US dollar and help the EUR/USD pair mitigate its losses.
Eurozone Economic Weakness and ECB Rate Cut Expectations Pressure EUR/USD Pair
On the EUR front, the ECB is expected to cut interest rates two more times by the end of the year due to weak economic activity in the Eurozone. The preliminary Eurozone Hamburg Commercial Bank (HCOB) Purchasing Managers’ Index (PMI) report for July showed a slowdown in both manufacturing and services.
The HCOB Composite PMI decreased to 50.1, just above the 50 threshold that separates expansion from contraction, falling short of investor expectations of 51.1. Manufacturing contracted to 45.6, while services expanded at a slower pace of 51.9.
This in turn, Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, noted that weak demand in Germany's manufacturing sector is dragging down overall private sector output.
In contrast, French service providers increased activity due to preparations for the Olympic Games.
Despite this, input prices in the services sector rose at a faster rate, and selling prices remained steady, offering no relief to ECB policymakers. Traders currently expect the ECB to deliver two more rate cuts this year, aligning with some ECB officials' views.
Therefore, the weak Eurozone economic data and expectations for additional ECB rate cuts pressure the EUR/USD pair. Despite increased activity in French services, the overall slowdown and rising input prices contribute to the euro's struggles against the stronger US dollar.
Strong US Dollar and Anticipated Fed Rate Cuts Impact EUR/USD Pair
On the US front, the broad-based US dollar managed to stop its bearish bias and regained its positive traction, edging higher near a weekly high of around 104.50.
This strength is due to investor interest ahead of the US presidential elections in November, with market experts predicting a win for Donald Trump despite the Democratic nomination of Vice President Kamala Harris. Additionally, the US dollar's performance is influenced by anticipation of significant upcoming economic data releases.
On the data front, investors are closely watching the preliminary US S&P Global PMI data for July, which is expected to show modest expansion in both manufacturing and services.
The main triggers for the US dollar this week will be the preliminary Q2 GDP and the Personal Consumption Expenditures (PCE) Price Index data, scheduled for release on Thursday and Friday, respectively. The US economy is projected to have grown by 1.9% in Q2, up from the previous 1.4%.
Investors are particularly focused on the core PCE inflation data, the Federal Reserve’s preferred measure of inflation, to assess the timeline for potential interest rate cuts. Markets currently anticipate these rate cuts to begin in September.
Therefore, the strong US dollar, driven by investor interest ahead of the presidential elections and anticipation of significant economic data releases, pressures the EUR/USD pair. However, potential Federal Reserve rate cuts in September may limit the pair's losses.
EUR/USD - Technical Analysis
EUR/USD is currently trading at $1.0828, reflecting the latest market movements. The 4-hour chart highlights crucial technical levels that traders should monitor closely. The pivot point is positioned at $1.0847, serving as a central level around which price action is likely to oscillate.
Immediate resistance levels are identified at $1.0878, $1.0912, and $1.0949. These levels represent potential selling points where the market may encounter resistance if it attempts to rise.
On the downside, immediate support levels are found at $1.0806, $1.0777, and $1.0753. These levels are critical as they indicate potential areas where buying interest may emerge, preventing further declines.
The Relative Strength Index (RSI) is currently at 25, suggesting that the market is in oversold territory. This indicates a potential for a rebound if buyers step in at lower levels.
The 50-day Exponential Moving Average (EMA) stands at $1.0894, acting as a dynamic resistance level that traders should watch for potential price reactions.
Given the current technical setup, the recommendation is to sell below $1.08474. The take profit level is set at $1.08068, providing a reasonable downside target. A stop loss is advised at $1.08724 to manage risk, protecting against potential upward reversals.
In conclusion, the technical outlook for EUR/USD suggests a bearish sentiment below the pivot point of $1.0847.
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