- The EUR/USD remains under pressure as concerns about the eurozone economy and the future of monetary policy persist.
- The pair has lost ground for three consecutive weeks.
- Currently, the pair is trading below the 1.07 support level.
According to the results of the economic calendar, Standard & Poor’s Global said its Eurozone PMI survey showed that “the economic recovery suffered a setback at the end of the second quarter.” The headline composite PMI reading was 50.8, down from 52.2 in May and below the consensus estimate of 52.5. The manufacturing sector remained well within contractionary territory at 45.6 (exp: 47.9, before: 47.3). Services continue to drive the economy, expanding at 52.6 (FX: 53.5, BEF: 53.2).
According to reliable trading platforms, the euro was sold off ahead of the eurozone PMI, as markets considered the German and French PMIs, which were released 45 minutes and 30 minutes (respectively) before the eurozone-wide release. They showed a flow of disappointment as all elements came in below expectations. In the 45-minute window following the German release, a third of a percent of the euro was sold against the dollar.
According to S&P Global, companies reported that new orders fell for the first time in four months, reflecting softer expansions in business activity and employment. The European Central Bank cut interest rates in June and could feel emboldened to cut them again in the coming months as input cost and output price inflation rates fell to six- and eight-month lows, respectively.
Business confidence has fallen to its lowest level since February.
In another area that will weigh on the future of the euro dollar, if he returns to the White House, Donald Trump has pledged to enact a 10% tariff across the board on imports, which he says will raise billions of dollars in revenue to pay for further tax cuts. However, mainstream economists say the Republican candidate’s trade agenda for a second term, which also calls for raising tariffs on goods made in China to 60% or more, essentially amounts to a tax increase on American households.
In terms of the future of European Central Bank policy, the risk of new inflationary shocks means the ECB should remain flexible on interest rates, according to Executive Board member Isabel Schnabel. “We could be threatened by new price shocks,” Schnabel said at an awards ceremony in Kiel, Germany, on Sunday. “That’s why we are on alert and have not committed ourselves in advance to a fixed rate path, but we are data-driven.”
The European Central Bank cut borrowing costs earlier this month, and while officials have indicated this won’t be the only cut, they haven’t offered much guidance on how quickly rates might fall. Moreover, most have highlighted the lingering risks of inflation and urged a cautious approach.
The process of bringing down inflation is likely to be “rather bumpy,” she said, adding, “We describe this as the hard last mile.” Schnabel also said that while goods inflation is slowing rapidly, price pressures from services are proving more difficult.
The ECB doesn't expect consumer price growth to reach its 2% target until the last quarter of 2025, according to forecasts published earlier this month. Inflation accelerated to 2.6% in May, though Bloomberg Economics forecasts currently point to a 2.2% reading for June. Schnabel said: "Recent developments are in the right direction." But she added that geopolitical risks and the fallout from climate change - including the recent landslides in Switzerland - are among the potential supply-side shocks.
Meanwhile, Schnabel said Labor hoarding is weighing on Labor productivity and weakening monetary policy transmission. “Now that inflation is back, we see wage growth gradually decelerating, and there are no signs of the wage-price spiral we saw in the 1970s,” she said. Added, “This is because we have been able to anchor corporate and household inflation expectations to our inflation target.” Ended, “Companies are starting to absorb higher wage costs into their margins”.
EUR/USD Technical analysis and forecast:
Based on the daily chart the general trend for the EUR/USD pair is down and a break of the 1.0600 support is possible. This could open the door to testing stronger support levels, especially if political concerns in the eurozone continue to expand. Moreover, the USD pair has been supported by the Fed’s policy and economic performance. Technically, there will be no break of the current trend without moving towards the resistance of 1.0830 again. Furthermore, the euro will be affected today by the announcement of the German IFO consumer climate reading.
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