Title: EUR/USD Slips Closer to 1.1500 as US Manufacturing Trends Garner Market Focus
Source: VT Markets
Original Author: VT Markets Analysts
The EUR/USD currency pair continues to weaken against the US dollar, approaching key psychological support at the 1.1500 level. This downward trend is fueled by stronger US dollar sentiment, persistent economic divergence between the Federal Reserve and European Central Bank (ECB), and rising investor attention on US manufacturing data. The latest market movements underscore the influence of diverging monetary policy expectations and reinforce traders’ caution ahead of upcoming economic releases.
In recent sessions, bearish momentum has built around the euro as market participants react to elevated US bond yields, a resilient dollar, and weaker Eurozone fundamentals. Here’s a comprehensive analysis of the recent price action in the EUR/USD pair, the driving macroeconomic factors, and what traders should monitor in the near term.
Market Overview: EUR/USD Price Action Analysis
– The EUR/USD pair extended its slide from the recent resistance seen near 1.1600, with price action reflecting consistent pressure from bullish sentiment surrounding the US dollar.
– Recent movements have seen the pair dropping into the lower 1.15 region, signaling an uncertain outlook for the euro amid global growth divergences.
– Technical indicators suggest a bearish outlook as long as the pair remains below key resistance levels and shows no significant reversal signals.
Daily and Weekly Chart Assessments
From a technical perspective, EUR/USD continues to struggle to find support, breaking below pivotal levels in recent trading sessions.
– On the daily chart, price action shows a steady downtrend with lower highs and lower lows forming since early April.
– Weak attempts by the euro to recover have repeatedly failed to break above former support-turned-resistance zones, particularly around the 1.1600 mark.
– Momentum indicators, such as the Relative Strength Index (RSI), suggest prolonged bearish disposition, hovering under the neutral 50 level, which points to sellers maintaining control.
– Weekly chart analysis indicates broad structural weakness. The sustained break below weekly moving averages further affirms downside risk.
Fundamental Drivers Behind the EUR/USD Weakness
Several interrelated fundamental factors contribute to the ongoing decline in the EUR/USD currency pair:
1. Strong US Dollar Performance
– The dollar continues to garner strength due to rising US Treasury yields and firm expectations of a high-for-longer interest rate environment orchestrated by the Federal Reserve.
– Higher yields on long-term US government bonds attract international capital inflows into dollar-denominated assets, boosting demand for the greenback.
– The US Dollar Index (DXY) remains elevated and is testing multi-week highs, further reinforcing dollar dominance against its counterparts.
2. Fed’s Monetary Policy Outlook Remains Hawkish
– Recent Fed commentary has reinforced the central bank’s commitment to keeping rates elevated until inflation returns sustainably to the 2 percent target.
– Sticky inflation in the US, particularly in core segments, has restricted the Fed from announcing any rate cut timelines, contrary to earlier rate cut expectations.
– The sharp contrast between the Fed’s message and market expectations earlier in the year has resulted in a recalibration of positions, increasing dollar strength.
3. Weakness in Eurozone Economic Data
– In contrast, economic activity in the Eurozone remains subdued, with key indicators highlighting ongoing stagnation in industrial output, manufacturing, and services.
– Eurozone inflation continues to ease, raising expectations that the ECB may begin its rate-cutting cycle sooner than previously anticipated.
– PMI data from major European economies reflect contraction or marginal expansion at best, adding to concerns over sluggish growth.
4. Expectations of Diverging Central Bank Paths
– The Fed and ECB have reinforced diverging monetary policy stances, with the former holding firm on interest rates and the latter signaling potential easing steps.
– Market participants anticipate the ECB may announce its first rate cut in the second half of 2024, ahead of any similar move by the Fed.
– This monetary policy divergence acts as a head
Read more on EUR/USD trading.