I expect that the results of the US Federal Reserve meeting will have a strong reaction on the markets. Analysts and markets want to know the course of the bank's policy, especially after a wave of calming rate hikes by other global central banks. The price of the currency pair, the euro against the US dollar, EUR/USD, rebounded upwards at the beginning of the announcement to the resistance level of 0.9976. It quickly returned to descend strongly to the support level of 0.9822 after the US Central Bank confirmed, through its governor, to raise the US interest rate until it reached the most important goal of containing US inflation, which recorded Its highest in 40 years.
Final survey results from S&P Global on Wednesday showed manufacturing activity in the euro zone contracted for the fourth consecutive month in October, pointing to a recession. The manufacturing PMI fell to a reading of 46.4 in October from a reading of 48.4 the previous month. The result was lower than the initial estimate of 46.6. Output and new orders have fallen at rates that have rarely been exceeded in the 25 years of collecting PMI data. Manufacturing production has continued to decline further, extending the current sequence of contraction that began in June.
Export demand fell sharply as geopolitical uncertainty, high inflation and weak economic conditions dented spending by foreign customers. With demand falling, manufacturers have reduced their purchases of inputs to the maximum extent since May 2020. Manufacturers have reported another sharp increase in their operating costs. Energy prices were a major factor driving up expenditures. However, input cost inflation was the second weakest since the beginning of 2021. Likewise, production cost inflation fell slightly to the second lowest level since April 2021.
In the third quarter, the European single currency bloc grew at a slower pace of 0.2 percent sequentially, after the 0.8 percent growth seen in the second quarter. In its World Economic Outlook, released last month, the International Monetary Fund said the euro zone is expected to experience a more pronounced slowdown as the energy crisis caused by the war in Ukraine continues to take a heavy toll, damping growth to 0.5 percent in 2023.
A PMI survey among member states showed that Spain was the worst performing country in October, closely followed by Germany. Spain's manufacturing sector has contracted the most since May 2020, with both production and new orders falling at rates not seen since the height of the pandemic-related lockdowns. The Factory Purchasing Managers' Index came in at 44.7 in October versus 49.0 in September. The pace of contraction in the German manufacturing sector accelerated in October. The S&P Global/BME Factory Purchasing Managers' Index came in at 45.1 versus 47.8 in the previous month but higher than expected with a reading of 45.7.
Forecast of the euro against the US dollar today:
- In the technical analysis of the EUR/USD currency pair, forming a descending channel since it abandoned the parity price.
- It is breaking the support level 0.9830 will support more bears' control over the trend.
- The technical indicators will move according to the performance on the daily chart to oversold levels if the euro dollar moves towards the 0.9710 support level.
- On the other hand, and over the same time period, the stability of the euro dollar above the parity price will be important to break the current bearish outlook.
I expect a state of relative stability for the EUR/USD pair with the current bearish momentum, until the markets react to the US job numbers announcement on Friday.
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