- While ECB officials expressed cautious optimism, the euro was affected by a weaker-than-expected EU PMI.
- The US PMI exceeded predictions, demonstrating economic resilience and bolstering the dollar.
- Trump’s budget advances in the House, further lifting the US dollar amid fiscal momentum.
In the currency market, the EUR/USD pair was impacted by the release of better-than-expected US economic data compared to the Eurozone’s Flash PMI figures for May, dipping below 1.1300 on Thursday. As of now, EUR/USD is at 1.1271, reflecting a 0.55% decline.
The US stock market exhibited slight gains as President Trump’s significant tax bill passed the House and awaits discussion in the Senate, where coordination on tax cuts and spending will occur.
Investors supported the dollar, as the greenback’s value against shared currencies likely surpassed expectations indicated by the US S&P Global PMI, reinforcing the economy’s strength.
Additional data revealed that the number of unemployment benefit applications in the US fell short of expectations, providing something of a relief for the Federal Reserve concerning its dual mandate of price stability and maximum employment.
Fed Governor Christopher Waller noted that if tariffs remain around 10%, the economy should be in decent shape by the second half of 2025.
In Europe, France, Germany, and the Eurozone experienced an unexpected contract in May. Concurrently, the German IFO Business Environment Survey showed a slight improvement in May.
Meanwhile, some European Central Bank (ECB) officials shared their thoughts. Yannis Stournaras raised questions about the safety of the US dollar, hinting at potential opportunities for the euro.
ECB Vice President Luis de Guindos mentioned that although economic growth may be slowing, inflation could soon align with the ECB’s 2% target. Boris Vujčić from the ECB noted that inflation might reach its target by the end of 2025.
This week will see the release of EU economic data, including GDP figures from Germany and comments from ECB speakers. The US agenda will feature housing data and remarks from the Fed.
EUR/USD Daily Market Movers: Upbeat US Economic Data Weighs on the Euro
- The House of Representatives has approved Trump’s tax bill, moving it to the Senate. The non-partisan Congressional Budget Office (CBO) anticipates that budget approval will increase US debt by $3.8 trillion over the next decade.
- The S&P Global Flash Manufacturing PMI for May rose to 52.3, indicating a stronger than expected rebound in factory activity, significantly outpacing the estimates of 50.2 to 50.1. Flash Services PMI also saw improvement, increasing from 50.8 to 52.3, indicating ongoing strength in the service sector.
- Initial jobless claims for the week ending May 17th came in slightly below last week’s 229,000 and the expected 230,000, falling to 227,000, which suggests a resilient labor market.
- The eurozone’s HCOB Flash PMI for May was disappointing, causing the euro to weaken and reflecting the ongoing economic slowdown. The Services PMI dropped from 50.1 to 48.9, beneath the 50.3 estimate, while the manufacturing PMI increased slightly to 49.4 from 49.0 in April, exceeding forecasts.
- Germany’s HCOB Services PMI fell from 49.0 to 47.2, falling short of forecasts that anticipated an increase to 49.5. The HCOB manufacturing PMI rose to 48.8 from 48.4, but remained below the projected increase to 48.9 from April.
- The German IFO business environment index improved from 86.9 in April to 87.5 in May, surpassing expectations of 87.4. The company noted a more optimistic outlook, stating, “The German economy is slowly regaining its footing,” according to IFO President Clemens Fuest.
EUR/USD Technical Outlook: Likely to Stay Below 1.1300 for the Day
From a technical perspective, EUR/USD appears poised for a pause after recent movements. The chart’s bearish engulfing pattern could suggest further declines, as the pair recently hit a two-day low of 1.1255.
While the relative strength index (RSI) shows bullish momentum, it’s edging toward the neutral zone around 50, indicating that buying pressure may be waning.
If EUR/USD closes below 1.1300, it could pave the way to test the 1.1255 level. On the upside, the next major resistance would be around 1.1200, just before the 50-day Simple Moving Average (SMA) at 1.1138.
On the other hand, if EUR/USD trades above 1.13, potential gains could see resistance at 1.1362, the daily peak recorded on May 21.
