EUR/USD Struggles After Initial Gains
The EUR/USD pair’s brief attempt to rise has faltered, slipping back to under 1.1510 and nearing its session low of 1.1500 after facing resistance at 1.1530. This currency pair, it seems, remains susceptible following a nearly 1.3% decline over the last four trading days, a consequence of the US dollar’s surge after last week’s assertive interest rate adjustments by the Federal Reserve.
On Monday, the dollar kept climbing, seemingly unfazed by disappointing manufacturing activity data from the U.S. The October ISM Manufacturing Purchasing Managers’ Index (PMI) indicated a contraction in economic activity in this sector for the eighth consecutive month, impacted by a reduction in orders and weak job growth.
Complicating the situation, Federal Reserve policymakers have expressed differing views on the economic outlook, with both San Francisco Fed President Mary Daley and Chicago Fed President Austan Goolsby adopting a cautious stance, while President Stephen Millan deemed current monetary policy excessively restrictive.
In terms of the eurozone, ECB President Christine Lagarde is slated to speak later, though no significant updates regarding monetary policy are expected. Meanwhile, in the U.S., the ongoing government shutdown has prevented the release of job and factory order data for September. Investors are now eyeing the October ADP employment changes scheduled for Wednesday for additional insights into labor market conditions.
Daily Market Overview: The Dollar Dominates Amid Caution
- The US Dollar Index (DXY) has retreated from its peaks, but the downward momentum appears limited as moderate risk aversion mingles with reduced expectations for further interest rate cuts by the Federal Reserve in December, offsetting the adverse effects of recent manufacturing data.
- On Monday, ISM Manufacturing PMI for October fell to 48.7 from 49.1 in September, missing market expectations of 49.5, which had anticipated a gradual recovery. The new orders index, however, improved slightly to 49.4, while the employment sub-index rose to 46.0.
- San Francisco Fed President Mary Daley defended the October rate cut but expressed worries regarding persistent inflation, emphasizing the necessity for a “moderately restrictive” policy stance.
- In contrast, Chicago Fed President Austan Goolsby focuses more on inflation than the labor market and advocates for maintaining interest rates capable of counteracting inflationary pressures.
- Meanwhile, Stephen Millan, nominated by President Trump, has expressed that the current policy is too tight and promises to continue advocating for lower rates.
- Interestingly, futures markets have reduced the likelihood of a December rate cut to 67% from over 90% just a week ago, with U.S. Treasury yields and the dollar holding firm near their highs.
- From Europe, the HCOB Manufacturing PMI for the Eurozone confirmed expectations, indicating stagnation at 50.0, a slight uptick from September’s 49.8.
Technical Analysis: EUR/USD Tries to Gain Ground
The EUR/USD has rebounded after establishing support around the 1.1500 mark, which aligns with the USD index at the psychological level of 100.00. The 4-hour Relative Strength Index (RSI) rests below the significant 50.00 level, while the Moving Average Convergence Divergence (MACD) indicator is on the verge of a bullish crossover.
There could be some recovery on Tuesday, albeit possibly limited. The former support region around 1.1545, observed on October 14th and 30th, may pose a challenge for buyers, before reaching the lows of 1.1580 from October 22nd and 23rd. Ultimately, the high near 1.1635 from October 30th could be in sight.
On the downside, the low from Tuesday near 1.1500 will serve as immediate support. A breach below this could lead to a test of the 261.8% Fibonacci retracement from the late October uptrend, or the target for a broken triangle pattern, approximately at 1.1450.
