Foreign exchange (FX) markets have remained rather tranquil in the early days of September, with a notable absence being US investors, many of whom are still enjoying their summer vacations. Nevertheless, the calm may be short-lived as traders and investors return to their desks, sparking expectations of heightened volatility. Yet, the week ahead appears to offer slim pickings in terms of top-tier macroeconomic indicators, potentially paving the way for the US dollar’s bullish trend to persist. Consequently, the EUR base rate finds itself under continued pressure.
European Stocks Relinquish Earlier Gains as Eurozone Woes Continue
At the beginning of the trading week, the EUR/USD experienced a glimmer of hope as global stock markets opened with optimism. This improved market sentiment was partially fueled by China’s ongoing support for its financial markets and a generally positive reception of Friday’s non-farm payroll report in the United States. However, as the trading day progressed, much of these initial gains evaporated. Major European stock indices closed near their daily lows, albeit within the context of low trading volumes. This decline in equities acted as a restraint on the EUR/USD’s upward trajectory.
EUR/USD Analysis: Eurozone Woes Continue
The EUR/USD forum today was further hampered by a string of discouraging economic data emerging from Europe. Notably, the Sentix Investor Confidence Index, a significant gauge of economic health based on the input of approximately 2,800 surveyed investors and analysts, slumped deeper into negative territory at -21.5. This reading missed expectations and fell from the previous figure of -18.9. In addition to this, Germany’s trade surplus contracted more than anticipated, shrinking from €18.7 billion to €15.9 billion. Spain also delivered an unpleasant surprise as its unemployment figures. The rate unexpectedly swelled by 24.8K, contrary to the anticipated drop of 21.3 K. These data releases compound the bleak outlook for the Eurozone’s largest economy. European Central Bank (ECB) President Lagarde commented on the situation. He emphasized the necessity of anchoring inflation expectations while addressing these shifts in relative prices.
Mixed US Jobs Report Unable to Dent Dollar’s Bullish Trend
Despite the negative Eurozone data, the EUR/USD encountered renewed downward pressure on Friday. This was primarily due to the lacklustre economic figures from Europe. Surprisingly, the US dollar strengthened even as the mixed US jobs report fueled speculations about the Federal Reserve’s monetary policy. The market now suggests that the era of rate hikes may have peaked, with 30-day Fed Fund futures implying a 93% chance of the Fed maintaining interest rates at the upcoming September meetings. Although the US added 187K jobs in August, surpassing the expected 170K, the unemployment rate climbed to its highest level since February 2022, reaching 3.8%. Average hourly earnings also fell short of the 0.3% forecast, rising by just 0.2% month-over-month.
EUR/USD: Awaiting Confirmation of a Low
As of the latest data, the EUR base rate is trading near a substantial support level represented by the 200-day moving average. This level coincides with the lower boundary of an upward-sloping channel and the 89-week moving average. Notably, despite the choppy price movements witnessed since the beginning of 2023, the pair has not established a lower low since late last year. This suggests the presence of an underlying bullish bias. However, a sustained drop below the 1.0500-1.0600 range may pose a threat to this bullish trend. Additionally, current conditions indicate an oversold EUR/USD, hinting at the potential for a rebound. To confirm this, the pair would need to breach the high set last week at 1.0950.
