The EUR/USD pair staged a recovery, finding solace above the crucial 200-day Simple Moving Average (SMA) as the US Dollar weakened. The Euro rate upswing from the 1.0800 level is currently testing the 1.0870 region. Although further gains are possible, the broader trajectory remains downward.
Eurozone PMIs Influence the Euro Rate
The Euro’s recent rebound followed the release of the Eurozone’s preliminary August PMIs. The Composite PMI slipped from 48.6 to 47, falling short of the anticipated 48.5. In an unexpected turn, the Services PMI slumped into contraction territory, plummeting to 48.3. In contrast, the Manufacturing PMI brought some positivity, edging up from 42.7 to 43.7. Additionally, the preliminary EZ Consumer Confidence dipped from -15.1 to -16, deviating from the market’s consensus of -14.3. These data disappointments have cast doubt on a September European Central Bank (ECB) rate hike, weighing on the Euro exchange rate.
US PMIs trigger the Euro Buy Back Rate Correction
In the US, recent data unveiled a drop in the S&P Global Composite PMI from 52 to 50.4. The Manufacturing PMI fell from 49 to 47, contrary to expectations of a modest rise to 49.3. The Services PMI also retreated from 52.3 to 51. This slew of data caused the US Dollar to retreat across the board, prompting a corrective move. Additionally, the US witnessed improved New Home Sales in July, reaching a rate of 714K (annual rate) compared to the previous 684K.
Market Dynamics and US Treasury Yields
US Treasury yields witnessed a sharp dip on Wednesday, with the 10-year yield sinking to 4.20% and the 2-year yield sliding to 4.95%. Concurrently, US stocks posted over 1% gains on average. The confluence of falling yields and a heightened risk appetite exerted downward pressure on the US Dollar, aiding the EUR/USD pair’s recovery.
Upcoming Focus on Data and Jackson Hole Symposium
Thursday’s agenda features releases of weekly Jobless Claims and Durable Goods Orders. However, market attention remains on the Jackson Hole Symposium, spotlighting speeches by Fed Chair Powell and ECB President Lagarde on Friday.
The Technical Outlook for EUR/USD
The EUR/USD’s bounce from the critical 200-day SMA at around 1.0800 shows potential on the daily chart. Yet, the overarching trend stays bearish. The short-term scenario might shift if the pair ascends above the 20-day SMA, positioned at 1.0940.
On the 4-hour chart, the buy Euro trails below the 20-SMA around 1.0875, slightly above daily highs. Breaching this level could drive the pair towards 1.0900. Further resistance lies at 1.0930. Overcoming this barrier might pave the way for sustained gains. Failure to surpass 1.0880 in the next session could weaken the rebound and prompt a test of 1.0835. Below 1.0830, bearish pressure could intensify, targeting 1.0800 again.
Trader Sentiment and EUR/USD
Midway through the trading week, Client Sentiment levels are updated, revealing the percentage of IG clients with long or short positions in major forex pairs. For the Euro rate, the sentiment indicates 60% long positions, a slight increase from last week’s 57%. Despite a recent decline of over 250 pips in the past month, the pair has spent more time below 1.0900 in 2023.
