EUR/USD Fails at 1.12 Resistance As EZ Services Slow Further

Despite a lower ZEW economic sentiment report last Monday, the EUR/USD pair held firm last week, but it’s dipping after the soft PMI data today. The primary driver behind this strength has been the weakening US dollar (USD), which resumed its decline following the Fed’s 50 basis point rate cut on Wednesday evening. The USD saw a sharp drop after the Federal Reserve’s move, as inflation continued to approach the Fed’s 2% target. However, the Euro traders are kicking in as well now.

USD buyers are now looking ahead with optimism to this week’s PCE inflation report, the Fed’s preferred measure of inflation. On Wednesday, the Federal Reserve officially started its easing cycle by cutting rates by 50 basis points, signaling a dovish shift that reassured the forex market. The immediate resistance level at 1.1180-90 is a key target on the upside. Beyond that, the next goal is the year’s high from August, extending up to 1.1200, which will be crucial for further gains. But today the Euro has turned bearish against most currencies, so, 1.11 is under threat.

EUR/USD Chart Weekly – The 100 SMA Acting As Resistance

On the downside, support lies at the round number of 1.11 for EUR/USD , followed by Thursday’s low around the 1.1060s, and the major support at 1.10. On the Euro side, ECB officials appear inclined toward a rate cut in December, despite market expectations pricing in a 68% chance of a cut in October. The ECB’s decision will ultimately depend on forthcoming economic data.

Eurozone Services and Manufacturing PMI Reports Released by HCOB – 23 September 2024

• Eurozone September flash services PMI 50.5 points vs 52.1 points expected
• August flash services PMI 52.9 points
• Manufacturing PMI 44.8 points vs 45.6 points expected
• Prior 45.8 points
• Composite PMI 48.9 points vs 50.5 points expected
• Prior 51.0 points

HCOB’s assessment indicates that the eurozone is moving closer to stagnation, as economic activity declines across key sectors. The “Olympic effect” in France provided only temporary support, with the Composite PMI in September dropping to its lowest level in 15 months, now below the expansion threshold. A rapid decline in new orders and a shrinking order backlog point to further weakening ahead. Manufacturing continues to struggle, with a recession persisting for 27 months and worsening in September.

New orders have sharply fallen, and businesses hold a bleak outlook for future output, signaling that the downturn in this sector is far from over. The labour market is also feeling the strain, particularly in manufacturing, where job cuts are accelerating at the fastest pace since August 2020. Employment growth in the services sector has nearly stagnated after slowing for four consecutive months. Although official employment data has remained stable so far, there are signs that job figures could worsen, though demographic factors may provide more stability compared to past downturns.

On a positive note, both input and output price inflation have eased, particularly in services, which the European Central Bank (ECB) is monitoring closely. However, with the deepening recession in manufacturing and services near stagnation, there is potential for another rate cut by the ECB in October, despite market expectations suggesting otherwise.

EUR/USD Live Chart