EUR/USD Price Analysis – Sep 04, 2024
Daily Price Outlook
During the European trading session, the EUR/USD is consolidating within a narrow range close to a fresh two-week low of 1.1025. The major currency pair has turned sideways as the US Dollar (USD) adjusts following the release of the US ISM Manufacturing PMI data for August.
Meanwhile, the Euro’s near-term outlook remains negative as market participants anticipate that the European Central Bank’s (ECB) policy-easing cycle could be aggressive, given the steep decline in Eurozone inflationary pressures and weak economic growth.
USD Weakness and Upcoming Labor Data Could Boost EUR/USD
On the US front, the broad-based US Dollar (USD) is adjusting after the release of the ISM Manufacturing PMI data for August, which showed a reading of 47.2. This figure missed expectations of 47.5 but was an improvement from the eight-month low of 46.8. Despite this small uptick, a PMI below 50.0 still signals a contraction in manufacturing activity.
Consequently, the US Dollar Index (DXY) has dropped to around 101.60 after failing to regain a two-week high of 102.00. Investors are now looking ahead to Friday's US Nonfarm Payrolls (NFP) data for August, which will be crucial in determining the Federal Reserve’s next move on interest rates. There is a general expectation that the Fed might start reducing its key borrowing rates this month, but opinions vary on the size of the potential cut.
In addition to the NFP data, attention will also be on the US JOLTS Job Openings report for July and the ADP Employment Change data for August. The JOLTS report is anticipated to show about 8.1 million job vacancies, slightly down from the 8.184 million reported the previous month.
The Fed Chair Jerome Powell's recent comments at the Jackson Hole Symposium, highlighting concerns over weakening labor demand, have made these labor market reports even more significant for market participants.
Therefore, the weak ISM Manufacturing PMI and the upcoming US labor market data contribute to USD weakness, which could bolster the EUR/USD pair. If the Fed signals a rate cut, the EUR/USD might gain further, given the Eurozone's downbeat outlook.
ECB Rate Cut Expectations and Weak Eurozone Data Limit EUR Gains
On the EUR front, the shared currency shows a slight recovery as the US Dollar weakens. However, the Euro's near-term outlook remains negative. Market participants anticipate that the European Central Bank (ECB) might aggressively ease policy due to the sharp drop in Eurozone inflation and sluggish economic growth.
Bank of America (BofA) expects more ECB rate cuts through 2025 and 2026, forecasting a deposit rate of 2% by Q3 2025 and 1.5% in 2026. They note that Europe's recovery is fragile, affected by slow growth in China and political issues.
Furthermore, ECB officials express concerns about their policy stance being too restrictive. ECB Executive Board member Piero Cipollone warned about balancing inflation targets with economic growth. Investors are awaiting the Eurozone Retail Sales data for July, expected to show a slight 0.1% increase after a 0.3% contraction in June.
Despite a potential improvement, this may not alter market expectations of further ECB rate cuts. In the menatime, the Eurozone Producer Price Index (PPI) also showed slower deflation at 2.1%, better than the 2.5% estimate, but unlikely to change the ECB’s policy direction.
Therefore, the Euro's slight recovery against the US Dollar may be short-lived as expectations of aggressive ECB rate cuts and weak Eurozone economic data suggest continued EUR/USD pressure. The market anticipates further ECB easing, which could limit substantial gains for the EUR/USD pair.
EUR/USD - Technical Analysis
The EUR/USD pair is currently trading at $1.10568, gaining 0.13% during today's session. The price is edging closer to the pivot point at $1.11005, a crucial level that could set the tone for the day's trading.
Immediate resistance lies at $1.11395, with the next key levels being $1.11892 and $1.10337. On the downside, immediate support can be found at $1.09995, with further supports at $1.09685.
The 50-day Exponential Moving Average (EMA) sits at $1.11083, slightly above the current price. This EMA acts as a strong barrier for bulls trying to push the price higher.
A break above this could see the pair testing the next resistance at $1.11395, while a rejection could drive EUR/USD back toward its key support areas.
Technical indicators suggest a bearish bias for now. The Relative Strength Index (RSI) stands at 39, signaling that the market has room for further declines before reaching oversold conditions.
In the short term, selling pressure could dominate if the pair breaks below the immediate support at $1.10695. A fall below this level would likely accelerate the downward move toward $1.10208.
However, if EUR/USD manages to breach the $1.11005 pivot point and hold above it, we could see a shift in sentiment, potentially driving the pair toward $1.11395. Watch closely for a break or bounce around these key levels.
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