EUR/USD Price Analysis – Sep 06, 2023

Daily Price Outlook

The EUR/USD currency pair improved its position on Wednesday, moving away from the recent low of around 1.0700. In the previous session, the US Dollar had reached a six-month high near 105.00 against the Euro. However, the USD faced some selling pressure and slipped to a range of 104.80-104.70. Hence, the US Dollar's decline from its six-month high against the Euro on Wednesday led to an improvement in the EUR/USD currency pair. Despite rising US yields, the Euro gained ground, suggesting increased demand for the Euro relative to the US Dollar, resulting in a higher EUR/USD exchange rate.

ECB Council Member's Rate Hike Perspective and Market Reaction

Klaas Knot, a member of the European Central Bank (ECB) Governing Council, suggested in a Bloomberg interview that people who don't expect an interest rate increase next week might be underestimating the possibility of it happening. However, he clarified that it's not guaranteed, just a chance. Knot also stressed that reaching the 2% inflation target by the end of 2025 is the minimum goal. Despite potential economic slowdown, inflation projections are expected to remain similar to those in June. The market response has been muted, and the Euro is trading modestly higher against the US Dollar, hovering between 1.0730 and 1.0725.

Eurozone Retail Sales and Euro Performance

Eurostat's official data for July showed a 0.2% drop in retail sales in the Eurozone, compared to a 0.2% increase in June, falling short of the expected -0.2%. Yearly retail sales declined by 1.0% in July, matching the previous month's -1.0% and slightly beating expectations of -1.2%. Surprisingly, the Euro's performance remained relatively stable, trading at 1.0733, marking a modest 0.11% daily increase, despite the disappointing retail sales figures.

Recent Global Economic Trends

Apart from this, German Factory Orders suffered a significant setback in July, with a year-on-year decline of -11.7%, far worse than the expected -4.0% and a sharp contrast to the previously revised figure of 7.6%. The monthly figures didn't fare any better, dropping by -10.5% compared to the earlier 3.3%. These disappointing indicators align with the downbeat Eurozone Producer Price Index for July and ECB's inflation concerns.

In contrast, the United States saw more positive news, with Factory Orders, excluding transport, increasing by 0.8% despite an overall drop of -2.1% month-on-month in July. Strong shipments and rising inventories also contributed. Moreover, support from Federal Reserve Governor Christopher Waller for a hawkish monetary policy and Cleveland Federal Reserve President Loretta Mester's rejection of rate cuts strengthened the US Dollar.

Furthermore, concerns about more stimulus for China's struggling real estate sector boosted property shares, shifting market sentiment and offering some support to the EUR/USD pair.

EUR/USD - Technical Analysis

The EUR/USD pair currently displays a modest bullish inclination, influenced by the positive momentum indicated by the stochastic. This could lead to interim intraday appreciations before resuming a downward trajectory.

At present, the predominant bearish trend remains intact, exemplified by the descending channel visible on the chart and augmented by the downward pressure from the EMA50. We anticipate that a breach of the 1.0700 mark would pave the way for an ascent towards 1.0635.

Conversely, it's imperative to highlight that surpassing the 1.0785, followed by the 1.0825 thresholds, would disrupt the bearish narrative, prompting the price to embark on short-term recovery efforts. Today's trading is anticipated to oscillate between a support at 1.0640 and a resistance at 1.0790, with the dominant sentiment leaning bearish.