- EUR/USD is expected to decrease by 0.40% as US PMI suggests improved business activity in August.
- The number of unemployed individuals has reached a three-month high, indicating a cooling labor market.
- Federal Reserve officials Hammack, Schmid, and Bostic express a hawkish stance, focusing on inflation control.
- The ECB anticipates keeping rates steady, though adjusted supply forecasts are expected. Powell’s speech on Friday could provide immediate direction.
During the North American session, EUR/USD is projected to dip around 0.40% as the dollar strengthens following new US economic data. Positive business activity numbers overshadowed a weaker job report, prompting traders to lessen expectations for Federal Reserve rate cuts in September. Currently, the pair is trading at 1.1604 after hitting a daily peak of 1.1662.
Market sentiment has turned slightly negative as investors await a speech from Fed Chairman Jerome Powell. The S&P Global August PMI report indicates increased business activities within the US manufacturing and services sectors, lending support to the dollar.
Additionally, data reveals that Americans applying for new unemployment benefits have reached their highest level in three months, which is somewhat concerning.
Differences in central bank policies suggest that EUR/USD could see further declines. While the European Central Bank (ECB) is likely to maintain current rates at the next meeting, the Fed appears poised to resume its easing cycle, albeit tentatively.
However, Fed officials like Beth Hammack from Cleveland, Jeffrey Schmidt from Kansas City, and Rafael Bostic from Atlanta are emphasizing the fight against inflation, indicating that the employment mandate might not take precedence at this time.
All eyes will be on Powell this Friday. A dovish tilt could push EUR/USD higher as interest rate disparities widen between the US and the EU. Otherwise, as the US Dollar Index reflects, the dollar might be on the mend after previously reaching an annual low of 96.37.
Daily Digest Market Mover: Commentary on EUR/USD Hawkish for Defense in the Fed
- The US S&P Global Manufacturing PMI flash estimate surged to 53.3 in August, significantly exceeding the forecast of 49.5 and the July figure of 49.8, indicating robust growth in the sector. The Service PMI fell slightly to 55.4 from 55.7 in July, yet still surpassed the expectation of 54.2, highlighting the ongoing strength in service activities.
- For the week ending August 16th, initial unemployment claims in the US rose to 235K, well above the expected 225K. Continued claims also increased, reaching 1.972 million against a forecast of 1.96 million.
- Cleveland Fed’s Hammack remarked on the need for “conservative, restrictive policies to tackle inflation,” emphasizing a focus on excessive inflation rates.
- Kansas City Fed’s Schmidt stated that inflation risks overshadow the employment situation and noted expectations of inflation in August and September. He mentioned that current policies are modestly restrictive and that interest rates will not be cut.
- Bostic from Atlanta pointed out that inflation remains above target and suggested that “unemployment has been stable in line with full employment for a significant period.” He hinted at a possible rate cut in 2025, noting that business contacts have reported rising prices.
- According to HCOB, the EU’s Flash PMI indicated improvements in business conditions in August, with manufacturing PMI rising to 50.5 from 49.8 in July. Service activities also grew, albeit at a slower rate compared to July.
- Anticipations for the Fed to lower rates in September have dropped to 72%, down from 82% on August 20. Meanwhile, the ECB is expected to stand pat, indicating a 91% chance of no change, should adjustments occur, they might only be a modest 25 basis points.
Technical Outlook: As Bears Eye 1.1550, EUR/USD to Decline Towards 1.1600
EUR/USD appears to be trading sideways, albeit with a slight bearish bias after crossing below support levels indicated by a 20-day Simple Moving Average (SMA) at 1.1608. The momentum appears somewhat negative as the relative strength index (RSI) dips below the neutral line.
Initial support for the pair is pegged at 1.1600. A breach of this level could expose targets around the 100-day SMAs at 1.1550, 1.1500, and 1.1480. On the flip side, if EUR/USD climbs above 1.1650, the next significant level to watch would be the high from August 19, followed by the 1.1700 mark. Notably, the high of 1.1788 from July 24 stands out as key resistance, alongside highs of 1.1800 and 1.1829 registered earlier this year.
