EUR/USD has declined for three consecutive days this week, dropping about 0.10% as the dollar gained strength thanks to a favorable Purchasing Managers Index (PMI) report from ISM and strong employment figures. At the same time, inflation in the eurozone is cooling and remains close to the European Central Bank’s (ECB) target, putting pressure on the euro. Currently, the pair is trading at 1.1677, with a daily close likely to be under 1.1700.
Euro dips below 1.1700 as positive US PMI and solid jobs data overshadow weak Eurozone figures
The dollar found support following a weaker-than-expected ISM services PMI release for December, yet it indicated a rise in business activity within the services sector. According to a previous report, employment at U.S. companies saw a slight increase in December, showing an improvement from November, although job openings reportedly decreased, as stated by the Labor Department.
In Europe, the region’s harmonized index of consumer prices (HICP) met the ECB’s 2% annual target, but the underlying HICP is slightly above that target. Weak German retail sales in November contributed to the euro’s decline, leading to a two-day low of 1.1672.
In terms of U.S. data, the dollar strengthened, reflected by the U.S. dollar index (DXY). The DXY, which gauges the dollar against six currencies, increased by 0.14% to reach 98.73, creating headwinds for EUR/USD.
Traders are now focusing on upcoming data releases. In Europe, attention will be on eurozone consumer confidence, business confidence, economic sentiment, and producer price indexes. Meanwhile, in the U.S., data on December layoffs by Challenger and new jobless claims for the week ending January 3 are anticipated.
Daily market drivers: Strong U.S. PMI contributes to euro’s weakness
- The Institute for Supply Management reported a significant increase in the ISM Services PMI for December, indicating a boost in activity across the services sector. The index climbed from 52.6 to 54.4, surpassing expectations of 52.3. The employment subcomponent moved back into expansion, increasing from 48.9 to 52.0, which could be a relief for Federal Reserve officials. Meanwhile, prices paid decreased slightly from 65.4 to 64.3, hinting at easing cost pressures despite strong demand.
- Simultaneously, the November JOLTS report from the U.S. Department of Labor showed a decline in job openings from 7.449 million in October to 7.146 million, signaling a gradual cooling in labor demand.
- Earlier, the ADP employment change report indicated that private payrolls witnessed a rise of 41,000 in December. That figure was below the expected 47,000, but notably better than November’s loss of 29,000 jobs, suggesting a tentative stabilization in employment toward the year’s end.
- In Europe, the EU HICP rose by 2% year-on-year in December, as anticipated, yet slower than November’s 2.1% increase. Monthly inflation pressures increased by 0.2% following a 0.3% drop the previous month.
Technical outlook: EUR/USD dips below 1.1700 as RSI turns negative
The technical outlook for EUR/USD is deteriorating, with the currency pair ending Wednesday’s session below 1.1700. Sellers seem to be in control, as this is indicated by the Relative Strength Index (RSI) falling below the neutral 50 line.
Looking to the downside, the first major support level is the 100-day simple moving average (SMA) at 1.1663, followed by the 50-day and 200-day SMAs at 1.1640 and 1.1561, respectively.
If bulls want to regain momentum, they’ll need to surpass the 20-day simple moving average (SMA) sitting at 1.1733 before reaching 1.1750, which might then pave the way to 1.1800.
