- As Powell mentioned, EUR/USD remains relatively stable.
- Both the US and Eurozone Flash PMI reports indicate a slow down in business activity, raising concerns about GDP growth.
- While the Fed anticipates a rate cut in October, the ECB seems poised to maintain its current rates, lending some support to EUR/USD.
The EUR/USD pair climbed above 1.1800 on Tuesday, following Federal Reserve Chair Jerome Powell’s neutral stance and the latest business activity data from both Europe and the US. Currently, the pair has gained about 0.09%.
Dollar Faces Pressure Amid Risk Appetite; Euro Benefiting from Fed-ECB Policy Divergence
The dollar is feeling the pressure from risk appetite, but the euro hasn’t capitalized on this weakness. Powell’s recent comments echoed what he said during a Federal Open Market Committee (FOMC) meeting. He noted that central banks are grappling with a challenging policy environment, trying to balance both sides of their dual mandate. While he pointed out increasing risks in the labor market, he also noted that inflation is “slightly rising,” even though some balance has improved. Powell characterized the current monetary policy as “conservatively restrictive,” which should allow for further economic growth as needed.
In terms of data, the Flash Purchasing Managers’ Index (PMI) from both the US and the Eurozone suggests a slowdown in business activity, likely affecting upcoming economic growth figures.
Fed-Economy Divergence Supports Euro Appreciation
Nonetheless, there are strong predictions that the Federal Reserve may cut interest rates during its October meeting, according to major market tools. The European Central Bank (ECB) seems to be holding steady, especially after President Lagarde indicated that “the disinflation process is over” at the last meeting.
On Wednesday, attention will be on the German IFO business climate index as well as current readings and expectations for September. In the US, traders are anticipating housing data along with comments from Fed officials.
Daily Market Movers: Euro Integration Amid Economic Slowdown in Eurozone
- Previously, the US S&P Global Manufacturing PMI dropped from 53.0 to 52.0 in September, while the service PMI fell to 53.9 from 54.5 in August. Furthermore, S&P Global reported an increase in prices paid to 62.6 in September, up from 60.8 the previous month, indicating increased costs.
- Powell stated, “shortcomings to employment shifted the balance of risks,” suggesting a growing support for rate cuts, although he remained cautious, noting there’s “no risk-free path.”
- Atlanta Fed President Rafael Bostic expressed openness to revising the inflation target range, cautioning about potential inflationary pressures.
- Fed Governor Michelle Bowman indicated expectations for three rate cuts in 2025 to bolster the labor market, while Chicago Fed President Austan Goolsbee emphasized the need to return inflation to the 2% target.
- The Eurozone HCOB manufacturing PMI fell to 49.5 from 50.7, below expectations of 50.9, while the service PMI increased from 50.5 to 51.4.
- The US Dollar Index (DXY), which assesses the dollar’s value against a basket of currencies, fell by 0.09% to 97.21.
- Market data suggests a 91% probability that the Fed will reduce its rates by 25 basis points at the October 19 meeting.
Technical Overview: EUR/USD Surpasses 1.1800
The upward momentum for the Euro/USD remains strong, with the emergence of a bullish candlestick pattern driving prices beyond the 1.1800 mark. The pair reached a high of 1.1820 this week, but price action has since plateaued, preventing further advances towards testing the 1.1850 area, which lies close to a yearly peak of 1.1918.
The Relative Strength Index (RSI) remains stable in the bullish range. While this is a positive sign, the lack of movement has led to sideways trading that emphasizes the stability of EUR/USD.
If the Euro drops below 1.1800, the immediate support level will shift to 1.1750, followed by 1.1700, just ahead of the 100-day SMA and the swing low from August 27, which aligns between 1.1560 and 1.1574.
