- S&P Global PMI figures ease recessionary fears, boost US economy.
- Traders’ moods fluctuating to risk-on/off dominated the New York session.
- EU’s PMI results are mixed; manufacturing activity shranks, while Services and Composite Indices exceed expectations.
- Markets remain cautious amid uncertain rate outlooks from the Fed and the ECB.
The EUR/USD prepares to finish the week on a higher note, though it remains below the 1.1000 figure, albeit economic data from the United States (US) bolstered the US Dollar (USD). However, late into the Wall Street close, the greenback lost strength, US equities rose, and the Euro (EUR) recovered some ground. Hence, the EUR/USD is trading at 1.0988 after reaching a low of 1.0937.
US business activity picked up, but not so in the EU
Sentiment across the New York (NY) session fluctuated between risk-on/off. Investors’ recessionary fears about the US were pushed away by April’s S&P Global PMI figures, which showed the economy’s resilience, despite the US Federal Reserve (Fed) 475 bps of tightening. Manufacturing and Services PMIs exceeded estimates, with the former at 50.4, above 49 expectations, while the latter jumped to 53.7 from 51.5 estimates. Therefore, the Composite Index aimed higher to 53.5.
The market initially reacted to buying the US Dollar, which gained some ground vs. the Euro, as it dived to 1.0942. Nevertheless, buyers moved in and lifted the EUR/USD pair, though they failed to crack the 1.1000 mark.
This happened after Thursday’s data, namely, US unemployment claims, housing data, and the Philadelphia Fed Manufacturing Index, flashed a gloomy scenario, triggering flows towards safety, except for the US Dollar.
Aside from this, on the Eurozone (EU) side, Thursday’s calendar featured a surplus in the Balance of Trader of €4.6B, better than January’s deficit of €-31.6B, which was upward revised, alongside the Consumer Confidence, which improved a tick, to -17.5 above -18.5 estimates.
On Friday, the EU’s PMI was mixed, with the Manufacturing Index at 45.5, standing at contractionary territory missing estimates, while the Services and Composite Indices exceeded the consensus, expanding.
Fed and ECB May decisions loom
Meanwhile, central bankers from both sides of the Atlantic continued their hawkish rhetoric. For one part, Federal Reserve (Fed) officials agreed that inflation is too high, though there’s a myriad of opinions regarding how much tightening is left. On the European Central Bank (ECB), the baseline was made by its ECB Chief Economist Philip Lane, with most policymakers yet undecided about lifting rates by 50 or 25 bps.
EUR/USD Technical Analysis
From a daily chart perspective, the EUR/USD remains supported by the 20-day EMA from March 20 until today. Yet EUR/USD tested the April 21, 2022 high-turned-support at 1.0936, bounced off, and clung to the 1.0980s area amidst the lack of an impactful catalyst that could break the EUR/USD’s trading range. Should the EUR/USD reclaim 1.1000, a test to the YTD high is on the cards, followed by 1.1100. Conversely, a fall below 1.0900 will expose the 20-day EMA at 1.0911. If EUR/USD drops below the latter, a dive to 1.0800 is likely.
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A US government report showed on Friday that increasing economic activity in the US, such as manufacturing and services, had alleviated some of the market’s fears of a US recession in 2020. The US Purchasing Managers’ Index (PMI) rose more than expected to 53.2 in August, up from July’s 50.9.
This news was welcomed in financial markets, allowing the EUR/USD exchange rate to remain steady in the brief range of 1.0980-1.0990, up from the early morning low of 1.0960. Against the Japanese yen, the dollar scaled a three-week high, as investors expected the US Federal Reserve and other central banks to hold steady in terms of interest rate policies given the renewed strength in the US economy.
A strong US PMI was reassuring to investors, as it suggests that economic growth is continuing even in the face of escalating US-China trade tensions. The report followed stronger than expected US jobless claims, which declined to 881,000 last week, down from 971,000 the previous week.
Analysts remained cautious in their outlook for the euro and the US dollar, believing that the potential for a European Central Bank rate cut in September and worries about slowing global growth could bring more volatility in the currency markets.
Overall, the positive news from the US PMI helped the EUR/USD exchange rate to maintain its support level of roughly 1.0980-1.0990. Investors will be watching to see how the continuing US-Chinese trade negotiations and the approach of the US presidential election influence the currency pair in the weeks ahead.