The euro falls as German business sentiment weakens
- The euro has dropped below 1.1780 in today’s trading, influenced by declining business sentiment in Germany.
- Weak market sentiment has pushed investors toward the safe haven of the US dollar on Wednesday.
- On Tuesday, Fed Chairman Jerome Powell indicated that further interest rate cuts are not assured.
The EUR/USD pair is experiencing a decline from a peak of 1.1820 and has reached new session lows under 1.1770. The weakening market sentiment and less favorable business environment figures from Germany are impacting the euro, while the US dollar continues to show strength.
The German IFO Institute’s Business Environment Index reveals a deterioration in economic sentiment among German companies compared to September’s expectations. Many companies are viewing the current economic situation as somewhat worse than in previous months, and there’s a general lack of optimism for the short term.
In the US, the Flash Purchasing Managers Index (PMI) released on Tuesday indicated that business activity has slowed in line with market expectations for September. An S&P Global report highlights that rising tariffs are driving up costs, yet low demand and intense competition are restricting price increases, leading to a slowdown since April.
Later, Powell reiterated the Fed’s challenges in finding the right monetary policy to address rising inflation risks without harming the labor market. He maintained a cautious stance on any potential financial easing. However, the market seems to have concluded that the central bank is likely to cut interest rates in both remaining monetary policy meetings this year.
Looking at Wednesday’s economic calendar, new home sales data from the US for August and a speech from Mary Daly, the Federal Reserve President in San Francisco, will likely draw attention during the US session.
Market Digest: Risk Aversion and Weak Data Pressure the Euro
- The euro bears are gaining ground following disappointing German data, while market caution bolsters the US dollar as a safer option on Wednesday.
- Recent data showed that Germany’s business environment index fell from 89.0 to 87.7 in August. Additionally, the measure for current economic conditions dropped from 86.4 to 85.67, and economic expectations fell from 91.6 to 89.7.
- On Tuesday, US PMI figures eased to 53.9 in September, down from 54.5 in August, indicating a slowdown—consistent with market forecasts.
- Powell pointed out the “challenging situation” facing the central bank, suggesting that additional interest rate cuts may not be forthcoming, although the market reaction was muted.
- Some European data showed unexpected growth in service activities, with the preliminary PMI increasing to 51.4, surpassing the stable expectation of 50.5. However, manufacturing activity dropped to 49.5, falling short of the anticipated slight improvement.
- In Germany, the manufacturing PMI declined from 49.8 to 48.5 against expectations for an uptick to 50.0. Conversely, service activity surged from 49.3 to 52.5, exceeding the pessimistic forecasts.
- France also reported a decrease in its manufacturing PMI from 50.4 to a three-month low of 48.1, while service sector activity slipped from 49.8 to 48.9.
Technical Analysis: EUR/USD approaching critical support levels
The EUR/USD is showing strong bearish momentum after breaking through the 1.1780 support level. Attention is turning to the trendline support near 1.1740, established at the low from September 2. The relative strength index (RSI) is below 50, and the moving average convergence divergence (MACD) is under the signal line, indicating that sellers are currently dominant.
Confirming a drop below the 1.1740 trendline could pave the way towards the next support level around 1.1700. On the upside, the recent high of 1.1820 marked the peak for this week’s upward attempts, with the next upward target set at approximately 1.1850, close to 1.1878, which were both noted earlier in September.
