- The euro is likely to decline from its recent peak as the US dollar deals with growing risk aversion.
- Unexpectedly high inflation data in the eurozone hasn’t been enough to bolster the euro.
- Following a slight dip, the US dollar is recovering ahead of significant business activity and employment reports from the US.
The EUR/USD is set to end its five-day winning streak on Tuesday, dropping from Monday’s high of 1.1735 to around 1.1630 just before the US session begins. Concerns about risk have fueled a resurgence in the US dollar, particularly following a consumer price index (CPI) release from the eurozone that was stronger than anticipated.
In August, eurozone inflation reached 2.1%, markedly higher than the expected 4%, while core CPI remained unchanged at 2.2% year-on-year. Analysts had anticipated a modest dip to 2.2%. Such data could provide additional justification for the European Central Bank (ECB) to maintain current pricing during its meeting next week.
Meanwhile, the US dollar is making a solid recovery after its recent losses, with US markets set to reopen following the Labor Day holiday.
Today’s focus shifts to the ISM Manufacturing Purchasing Managers’ Index (PMI) in the US, heralding a busy week that will conclude with crucial non-farm payroll reports, as the Federal Reserve prepares for its upcoming meeting.
Today’s Euro Price
The following table details how the euro (EUR) is performing against other currencies today, showing that the euro has been particularly strong against the British pound?
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.70% | 1.11% | 0.95% | 0.17% | 0.67% | 0.85% | 0.64% | |
| EUR | -0.70% | 0.40% | 0.29% | -0.52% | -0.00% | 0.15% | -0.06% | |
| GBP | -1.11% | -0.40% | -0.12% | -0.92% | -0.42% | -0.26% | -0.46% | |
| JPY | -0.95% | -0.29% | 0.12% | -0.78% | -0.29% | -0.09% | -0.27% | |
| CAD | -0.17% | 0.52% | 0.92% | 0.78% | 0.47% | 0.70% | 0.46% | |
| AUD | -0.67% | 0.00% | 0.42% | 0.29% | -0.47% | 0.17% | -0.05% | |
| NZD | -0.85% | -0.15% | 0.26% | 0.09% | -0.70% | -0.17% | -0.21% | |
| CHF | -0.64% | 0.06% | 0.46% | 0.27% | -0.46% | 0.05% | 0.21% |
The heatmap depicts the degree of change amongst significant currencies, with the base currency coming from the left column and the estimated currency from the top row. For instance, if you select the euro from the left and move across to US dollars at the top, the change rate shown in the box indicates EUR (base)/USD (quote).
Market Update: US Dollar May Face Challenges Before Key Data
- The euro retreated on Tuesday, remaining within the trading range it has held for the past month. Comments made by Trump regarding the Federal Reserve, coupled with market speculation that the US Central Bank will lower interest rates later this month, could cap any gains for the USD, while strong eurozone macroeconomic data and assertive ECB statements may bolster the euro.
- On Tuesday, ECB board member Isabel Schnabel stated that interest rates are “gradually adjustable” and saw no reason for further financial easing in the near future.
- ECB President Christine Lagarde, speaking on Monday, reinforced support for the euro. She dismissed worries over the French banking system and indicated that economic uncertainty has seen “substantial reduction,” suggesting that the monetary policy would remain steady after the September meeting.
- Recent data from the eurozone indicated an expansion in sector activity for August, with the PMI for HCOB Manufacturing Purchase Managers in the eurozone revised to 50.7 from a former estimate of 50.5.
- In the US, attention turns to the ISM manufacturing PMI, set for release at 14:00 GMT. It’s expected to rise from 48 in July to 48, signaling a contraction in sector activity.
Technical Analysis: EUR/USD Resistance at 1.1740 Continues to Hold the Bulls Back
After being rejected at 1.1740 on Monday, the EUR/USD is currently facing bearish pressure. Yet, from a broader point of view, this pair is seeking direction within a range of 150 pips, which covered most price fluctuations in August.
For euro bears, there may be pivotal support around the bottom of the monthly trading range between 1.1575 and 1.1590, previously closing at those levels on August 11th, 22nd, and 27th. The 50% Fibonacci retracement level during the early August bullish run stands at 1.1560, while the August 5th low was roughly 1.1530, potentially offering some support.
On the upside, the confluence at 1.1730 and 1.1740 serves as a downward trend resistance encompassing the peaks from August 13th and 22nd, alongside Monday’s highs, presenting a significant hurdle for the bulls. A breakout beyond this level could lead to a revisit of the July 1 high at 1.1830, paving the way toward the 1.1790 level later in July.
Economic Indicators
ISM Manufacturing PMI
The ISM Manufacturing Purchasing Managers Index (PMI) is a monthly indicator of business activity, reflecting quality metrics in the US manufacturing sector. This data draws on surveys of executives in manufacturing and supply-chain roles, comparing changes this month against the last. An index reading above 50 indicates a general expansion in the manufacturing economy—generally seen as a positive for the US dollar—whereas readings below 50 suggest a contraction, posing potential challenges for the USD.
ISM Manufacturing Prices Paid
The ISM Manufacturing Index gauges overall business conditions in the US manufacturing sector, incorporating metrics like future production, new orders, inventory, employment, and delivery forecasts. It serves as a key indicator of the overall economy. The prices paid component reflects business sentiment towards future inflation; higher scores are viewed positively for the US dollar, while lower results can signal weakness.
