EUR/USD Gains as Euro Defies Weak Eurozone Growth

Economic

Summary:

EUR/USD approached 1.1200 as the Euro gained strength despite Eurozone growth concerns, driven by expectations of an ECB rate cut this year.

BUY EURUSD

Close Time

CLOSED

1.11900

Entry Price

1.13000

1.10900

1.16169 -0.00257 -0.22%

100.0

Pips

Loss

1.10900

Exit Price

1.11900

Entry Price

1.13000

The EUR/USD currency pair edged closer to the 1.1200 mark during European trading hours, with the Euro gaining ground against its major counterparts, despite mounting concerns over economic growth in the Eurozone. The Euro's resilience comes as market participants digest mixed economic signals, including a notable contraction in business activity across the region. However, expectations surrounding the European Central Bank's (ECB) upcoming policy decisions continue to provide support for the Euro, as the ECB is likely to cut interest rates before the year ends. On the U.S. side, the next significant event for the Dollar will be the core Personal Consumption Expenditures (PCE) inflation data for August, set to be released this Friday.

One of the most alarming economic indicators for the Eurozone came in the form of the HCOB Composite Purchasing Managers Index (PMI), compiled by S&P Global and Hamburg Commercial Bank (HCOB). The index unexpectedly fell to 48.9 in September, marking the lowest reading since January and slipping deeper into contraction territory (below 50). The downturn in business activity was largely driven by the continued struggles in the manufacturing sector, particularly in Europe’s largest economy, Germany.

Germany's HCOB Manufacturing PMI dropped to 40.3 in September, marking its lowest point since the same month in 2023. This extended the sector’s contraction streak to 27 consecutive months, highlighting the prolonged weakness in one of the key pillars of the Eurozone economy. Germany’s industrial powerhouse status has been under pressure, with global supply chain disruptions and sluggish demand weighing heavily on its manufacturing output.

Meanwhile, France’s economy also showed signs of strain. The French HCOB Composite PMI fell back into contraction after a brief expansion in August, largely due to the economic boost from the one-off Olympic event that temporarily lifted activity. With that effect now fading, France joins the broader Eurozone in grappling with slowing economic momentum.

As concerns over the Eurozone's economic trajectory deepen, market expectations for the ECB’s monetary policy response have grown. The central bank, after implementing a series of interest rate hikes in the past year to curb inflation, is now widely anticipated to reverse course with at least one interest rate cut before the year concludes. The ECB has just two more policy meetings left in 2024, and the timing of the rate cut will be a key focus for traders and investors.

While the Euro's performance is being guided by Eurozone data and ECB expectations, the U.S. Dollar is awaiting its own key event in the form of the core Personal Consumption Expenditures (PCE) inflation report for August, which is scheduled for release on Friday. The PCE inflation data is one of the Federal Reserve’s preferred measures of inflation and will play a crucial role in shaping expectations for the Fed’s future interest rate path.

Should the PCE data show persistent inflationary pressures, it could challenge the market’s current belief that the Fed is nearing the end of its rate-hiking cycle. Conversely, if the data points to easing inflation, it could reinforce expectations of a pause or even rate cuts in the coming months, further weakening the U.S. Dollar against major currencies like the Euro.

Technical Analysis

From a technical standpoint, the EUR/USD pair is encountering significant resistance around the 1.1200 level. After attempting to breach this key resistance, the pair is showing some signs of a slight bearish pullback, influenced by stochastic indicators suggesting overbought conditions. However, the overall trend remains bullish for the time being, with expectations that the pair could resume its upward movement once it gathers sufficient positive momentum.

If EUR/USD successfully breaches the 1.1200 level, the next target would be 1.1300, where additional resistance is expected. On the other hand, failure to break through the current resistance could place the pair under renewed selling pressure, potentially driving the price down towards the 1.1100 support area. For now, the trading range is expected to stay between 1.1130 and 1.1280.

The trend forecast for the pair remains bullish, but the near-term price action will likely depend on the market's interpretation of upcoming economic data from both the Eurozone and the U.S.

TRADE RECOMMENDATION

BUY EURUSD

ENTRY PRICE: 1.11900

STOP LOSS: 1.10900

TAKE PROFIT: 1.1300

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