The Euro Shrugs off Poor HCOB PMI as German Data Shows Mild Improvement

• The Euro is surprisingly resilient amid poor HCOB PMI reports.
• Following an attack on Iran’s nuclear sites, Iran retaliates by targeting a US base in Qatar.
• Market participants await key testimonies from Powell, German IFO data, and comments from the ECB this week.

The Euro (EUR) has been climbing against the US dollar (USD) on Monday, despite a generally pessimistic market environment due to ongoing unrest in the Middle East. The Eurozone HCOB Flash PMI figures were lackluster, and while the German PMI remained in contraction territory, it did exhibit slight improvement. Currently, EUR/USD is up by 0.40%, trading at 1.1567.

Geopolitical events are the main focus as the new trading week begins in June. Over the weekend, the US conducted strikes on key Iranian nuclear facilities, a move that followed stalled negotiations between the White House and Tehran.

In response, Iran launched an attack on a US base in Qatar. Meanwhile, sirens were activated at the Ain Al-Assad base in Iraq in anticipation of a possible retaliatory strike, although no missiles were launched. On top of the military actions, Iran’s parliament has decided to halt its collaboration with the International Atomic Energy Agency (IAEA).

On the economic front, S&P Global reported that US business activities are expanding, particularly in manufacturing. In the services sector, growth continued at a healthy rate, even though the June figures showed a slight decrease compared to May.

In the Eurozone, the HCOB Flash PMI reported disappointing numbers, missing expectations. However, Germany’s Flash PMI improved, offering some comfort for the Euro despite ECB President Christine Lagarde noting a generally weak outlook for short-term economic activity.

Attention is now turning to Federal Reserve Chairman Jerome Powell’s upcoming testimony before Congress, along with the release of the German IFO business climate index and comments from ECB officials, including de Guindos and chief economist Philip Lane.

Daily Market Update: EUR/USD Gains from Fed’s Dovish Stance

• The EUR/USD pair gained traction after Federal Reserve Governor Michelle Bowman hinted at a potential interest rate cut in July if inflation pressures ease.
• June’s US S&P Global Manufacturing PMI held steady at 52, exceeding the expectation of 51, indicating ongoing sector expansion. The service PMI softened slightly from 53.7 to 53.1 but still surpassed the forecast of 52.9.
• The US Dollar Index (DXY), which measures the dollar against a basket of six currencies, dropped by 0.42% to 98.35, while US Treasury yields fell, providing supportive conditions for gold prices.
• In the Eurozone, the HCOB manufacturing PMI in June remained unchanged at 49.4, still in contraction territory, while the service PMI rose from 49.7 to 50 as anticipated. Germany’s HCOB manufacturing PMI improved from 48.3 to 49, and the service PMI rose from 47.1 to 49.4, although still shy of expansion.
• Last week, Powell indicated the Fed is in a wait-and-see mode, suggesting current policy is modestly restrictive. He mentioned that maintaining this approach is appropriate while the labor market remains strong and inflation cools down.
• Financial market participants do not foresee the ECB cutting their deposit facility rate to 25 basis points (BPS) during the upcoming monetary policy meeting in July.

Euro Technical Outlook: Bulls Eye 1.1600 with EUR/USD Surge

The EUR/USD opened the week at approximately 1.1454, initially gapping down due to risk aversion. However, as market sentiment improved and Governor Bowman’s comments rekindled interest in the pair, it climbed past 1.1550.

The relative strength index (RSI) is trending upwards, indicating buyers are gaining momentum. The path ahead for EUR/USD seems relatively clear, with initial resistance at 1.1600 and a yearly peak at 1.1631 recorded on June 12. There are targets in sight at 1.1650 and 1.1700 as well.

If the EUR/USD dips below 1.1550, it may open the door for a test of 1.1500. Clearing that level would lead toward further support at the 20-day Simple Moving Average (SMA) at 1.1450, pointing towards 1.1400 afterward.