The EUR/USD currency pair is experiencing a modest recovery after a significant drop triggered by disappointing Eurozone economic data earlier in the week. Expectations of a more dovish stance from the Federal Reserve are causing renewed selling pressure on the US dollar, providing some support for the pair. However, traders remain cautious and are likely to hold off on making larger moves until they have clearer indications regarding the Fed’s potential rate-cut strategy.
On Tuesday, the EUR/USD pair is attempting to recover from the previous day’s decline, which was prompted by a contraction in Eurozone business activity for September. The S&P Global Composite PMI for the Eurozone fell to 48.9, marking the first contraction in seven months and a notable drop from the prior month’s reading of 51.0. This downturn was primarily driven by significant declines in activity within Germany and France, raising expectations for a 25 basis point rate cut from the European Central Bank in their upcoming October meeting.
In contrast, US data reveals stability in business activity, with the Composite PMI standing at 54.4 for September, only slightly lower than August’s figure. This report also noted a notable increase in prices for goods and services, signaling potential inflationary pressures that could support the US dollar. Nevertheless, ongoing speculation about substantial policy easing from the Federal Reserve is limiting the dollar’s strength, which in turn allows the EUR/USD to rebound somewhat.
Moreover, market anticipations are building for the Fed to cut rates by a total of 125 basis points in 2024. Influential comments from various Federal Reserve officials have spurred these expectations, suggesting a shift in focus towards managing risks associated with a softening labor market rather than inflation. This environment, combined with positive trends in global equity markets, tends to weaken the dollar further, providing a tailwind for the EUR/USD pair. However, traders are likely to remain conservative as they await key economic data, such as the US Personal Consumption Expenditures Price Index, which is set to be released soon.
From a technical standpoint, any upward movement in the EUR/USD could face resistance near the 1.1165-1.1170 range, with the potential for a breakout above 1.1200 to signal further bullish momentum. Conversely, a decline below the 1.1100 level could expose the pair to deeper losses, with critical support located near the 1.1000 psychological threshold. Should this level be decisively breached, it could indicate a shift in momentum, potentially driving the pair down towards the 1.0950-1.0940 region.
