Key Takeaways:
- Weak German and Eurozone PMI Data: Disappointing PMI figures have put pressure on the Euro, highlighting a softening pace of business activity.
- US Dollar Strength: Supported by strong non-farm payroll results and a risk-averse market atmosphere, the US Dollar has gained ground.
- Technical Levels: Key support at 1.0670 and resistance at 1.0730-1.0740 will be critical in determining the pair’s direction.
- Upcoming US Economic Data: PMI and Core PCE inflation figures will be crucial in shaping market expectations for the Fed’s policy decisions.
Market Dynamics and Recent Performance
The EUR/USD pair experienced significant volatility over the past week, trading around the 1.0700 mark. Weak German sentiment data and disappointing PMI figures from Germany and the Eurozone put pressure on the Euro. The German IFO Business Climate Index fell to 88.6 in June from 89.3 in May, while the HCOB Composite PMI for Germany declined to 50.6 from 52.4, and the Eurozone’s PMI dropped to 50.8 from 52.2. These figures highlighted a softening pace of business activity in the private sector, limiting the Euro’s gains.
Meanwhile, the US Dollar gained strength due to a risk-averse market atmosphere and strong US economic data. The US Dollar Index (DXY) moved near its weekly highs, supported by better-than-expected non-farm payroll results, which pushed the index back into its up-trending territory.
Technical and Fundamental Influences
From a technical perspective, the EUR/USD pair is testing critical support levels. The pair retested the 1.0670 support level, with the daily Relative Strength Index (RSI) hovering near its oversold zone. The Fibonacci 78.6% retracement of the latest uptrend aligns as key support at 1.0670, and a break below this level could open the door for further declines toward 1.0600. On the upside, the psychological level of 1.0700 and the Fibonacci 61.8% retracement at 1.0730-1.0740 act as interim resistance levels.
Fundamentally, the market is focused on upcoming US economic data, particularly the PMI and Core PCE inflation data. Recent statements from Federal Open Market Committee (FOMC) members, including Barkin, emphasized the need for more data on easing inflation before considering the first rate cut. This cautious approach has kept the US Dollar supported, adding pressure on the EUR/USD pair.
Looking Forward
In the coming week, all eyes will be on the US PMI data and the Core PCE inflation figures. These indicators will provide crucial insights into the US economic outlook and influence the Federal Reserve’s policy decisions. A strong PMI reading could reinforce the US Dollar’s strength, while weaker data might limit its gains.
The EUR/USD pair’s movement will also depend on broader market sentiment and any further developments in the Eurozone’s economic indicators. ECB officials’ comments and geopolitical factors, such as the ongoing French elections, could add to the pair’s volatility.
