The EUR/USD exchange rate has bounced back from earlier losses, now hovering around 1.1615, largely due to encouraging business activity reports from Germany and the eurozone. On the daily chart, it seems relatively stable. Still, the currency pair is somewhat stuck in a range from the previous days, with many traders now looking ahead to the upcoming release of the US Consumer Price Index (CPI) later today.
The recent HCOB Purchasing Managers’ Index (PMI) data for the eurozone showed an unexpected rise in manufacturing activity for October, along with better-than-anticipated growth in the services sector, which has recorded its strongest performance in the last year. These results positively influence the euro area’s economic outlook, alongside affirming a more hawkish stance from the European Central Bank (ECB), which curtails expectations for monetary loosening in the near future.
Despite this, the euro has faced some weakness this week, particularly following US President Donald Trump’s latest threat to impose new restrictions on software exports to China. This has negatively influenced market sentiment as people await the forthcoming meeting between Trump and Chinese President Xi Jinping.
On Friday, tensions flared again, this time with Canada, as Trump took to social media to claim that trade talks with Canada were “done.” This comment seemingly stemmed from an ad featuring negative remarks about tariffs from former President Ronald Reagan.
Daily digest that moves the market: Positive data from the euro area gives a modest boost to the euro
- The euro has made a recovery since the preliminary Eurozone PMI for October exceeded expectations. The HCOB Manufacturing PMI rose to 50.0 from 49.8 in September, defying forecasts of a slight drop to 49.5. Likewise, the HCOB services sector PMI increased to 52.6 from 51.3, outpacing the prediction of 51.1.
- Germany’s PMI data released earlier indicated a slight uptick in manufacturing activity to 49.6 from 49.5 during the previous month, while service sector activity surged to 54.5 from 51.5 in September, which was higher than expectations of a slowdown to 51.0.
- Nonetheless, the US dollar has remained relatively stable within its established range for the week, with hesitance in risk appetite owing to fresh trade challenges. Investors are now turning their attention to the forthcoming US inflation data due out today, as well as the upcoming Fed monetary policy meeting.
- The anticipated highlight of the week is the US CPI release for September, which is projected to increase at a consistent rate of 0.4% for the month, and 3.1% year-on-year—it’s a slight rise from 2.9% in August. Furthermore, core CPI is expected to maintain an annual growth rate of 3.1%, unchanged from the previous month.
- These figures will be crucial for determining next week’s Fed decisions, and it looks like investors are already factoring in a three-quarter point rate cut. According to data from CME Group’s Fed Watch tool, there’s a nearly 99% probability that the central bank will lower the benchmark rate by 25 basis points on Wednesday, with a 91% chance of another cut in December.
Technical analysis: EUR/USD stands below the water surface around 1.1600
Currently, EUR/USD is trading within a descending channel, and despite attempts to rally, selling pressure remains. The recent price fluctuations have stayed within a narrow band between 1.1620 and the support level at 1.1580, with traders keenly observing for fundamental cues that could guide the pair’s short-term direction.
Technical indicators are signaling a downward trend on the 4-hour chart, with the Relative Strength Index (RSI) unable to reclaim the 50 mark. However, for the bears to take control, confirming support below the 1.1580 level is necessary, which would pave the way toward the lows from October 9th and 14th around 1.1545. Further down, the round figure of 1.1500 is another possible target, just ahead of the channel’s bottom at approximately 1.1450.
Bullish efforts seem constrained beneath the 1.1620 mark, where the previous high from Thursday intersects with the channel high. If that is successfully broken, attention will shift to the peak near 1.1650 from October 21, followed by the October 17 high at 1.1728.
