The vagueness of the expectations regarding the decisions of the European Central Bank next week increased the downward pressure on the euro currency pair against the US dollar EUR/USD. The losses extended to the 1.0706 support level, the lowest for the currency pair in three months. It settled around the 1.0724 level at the beginning of today's trading session on Wednesday. Purchasing Managers' Index readings for the services sector of the Eurozone economies increased pessimism towards the Euro.
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Last week, investors were busy reviewing a large number of economic data in their attempt to get a better picture of the US economy. Much of the information fueled hopes that the Federal Reserve might ease interest rate hikes to fight inflation, which has been falling for months. Wall Street markets expect the US Federal Reserve Bank to keep interest rates steady at its next meeting later in September, just as it did at its previous meeting. Investors mostly bet that the US central bank will maintain this stop during the rest of the year.
The US central bank raised the main interest rate strongly from 2022 to the highest level since 2001. The goal was to curb inflation to the Fed's target of 2%. Many inflation measures have come close to this target and the economy is still growing. This has eased fears about the sharp rise in interest rates pushing the economy into recession.
In general, analysts are still concerned about the possibility of a recession, but these fears have diminished with the drop in inflation and the US economy remaining flexible.
At the same time, the US dollar scale is moving towards the levels last seen in March, when Treasury bond yields rose and traders thought about the possibility of US interest rates remaining high for a longer time. The dollar index rose after the re-opening of US government bonds lower after a holiday. Disappointing Chinese data also reinforced the US exceptionalism, sending the yuan and China-linked currencies lower, with the Australian and New Zealand dollars among the worst performers.
The Bloomberg gauge of the US dollar was up more than 4% from its lowest level since the beginning of the year in July, as traders bet that the Federal Reserve may have to raise US interest rates more to calm inflation. Accordingly, the US currency has strengthened against all major currencies in the past month.
Expectations of the euro against the dollar today:
- The general downward trend of the EUR/USD currency pair is getting stronger.
- Its recent losses have pushed the technical indicators towards strong oversold levels as shown on the daily chart below.
- One can consider buying the currency pair from the support levels 1.0680 and 1.0590 respectively.
The bulls should first move towards the resistance level 1.0875 to cause a breach of the current trend and the upward shift will be strong if it returns to the psychological resistance area of 1.1000 again. The Euro-Dollar currency pair will be affected by official signals of central bank policy and the announcement of the reading of the ISM Purchasing Managers' Index for American services.
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