**EUR/USD Dips as Dollar Strengthens After US Economic Data**
*Adapted from the original article by Christy Tay, Mitrade*
The EUR/USD currency pair recorded a notable decline on Thursday, August 1, 2024, as the euro fell below 1.0900 during the U.S. trading session. The downturn in the euro followed the release of better-than-expected U.S. economic data, which bolstered the U.S. dollar across the board.
This analysis will dive into the key drivers behind the EUR/USD movement, including the significant economic data releases from the United States, investor sentiment surrounding the Federal Reserve’s monetary policy, and the euro area’s economic backdrop.
## US Economic Data Support Greenback
The U.S. dollar found renewed strength after the release of key macroeconomic indicators, particularly from the labor market and manufacturing sector. These figures exceeded economists’ projections, enhancing market expectations that the Federal Reserve could maintain higher interest rates for an extended period.
### Key Economic Indicators Released:
– **Initial Jobless Claims**: The number of Americans filing for unemployment benefits for the first time in the previous week came in lower than expected, showing continued resilience in the labor market.
– **U.S. ISM Manufacturing PMI**: The Institute for Supply Management’s Purchasing Managers’ Index rose unexpectedly to 52.1 in July, beating forecasts of 50.0. This marked a return to expansion in the manufacturing sector, as any figure above 50 signals economic growth.
– **Unit Labor Costs (Q2 Preliminary Data)**: Unit labor costs surprised to the upside, increasing by 2.4% versus the expected 1.6%. This suggests upward pressure on wages, which could fuel inflation and influence Fed policy.
– **Nonfarm Productivity (Q2 Preliminary Data)**: Productivity grew by 1.3%, compared to projections of 1.0%. The improvement in productivity is another positive sign that the U.S. economy maintains growth potential even as inflationary pressures persist.
These figures indicated robust underlying demand and likely inflationary pressures, reinforcing the idea that the Federal Reserve’s inflation-fighting campaign is far from over. As a result, market sentiment tilted toward expecting fewer rate cuts in the near term, boosting the appeal of the U.S. dollar.
## EUR/USD Reaction and Market Sentiment
Following the data releases, euro-dollar edged lower, slipping beneath the critical 1.0900 mark after opening higher earlier in the session. The pair briefly touched a session low around 1.0880.
Key influences on this downward momentum:
– The strength of the U.S. dollar was the primary driver, powered by higher Treasury yields and heightened expectations that the Fed will hold off on cutting rates this year.
– Additionally, investor flows into U.S. assets, particularly the bond and stock markets, enhanced dollar demand, exerting further pressure on the euro.
### Technical Perspective on EUR/USD:
From a technical analysis standpoint:
– **Support Levels**: Immediate support is seen at 1.0870, followed by stronger support near 1.0830. A break below these levels could expose 1.0800 and eventually 1.0760.
– **Resistance Levels**: On the upside, 1.0930 is the first resistance, followed by 1.0960. A move above these could enable a retest of 1.1000.
– **Moving Averages**: EUR/USD currently trades below its 20-period simple moving average (SMA) on the 4-hour chart, indicating short-term bearish bias. The 50-period SMA now flattens around 1.0950, suggesting consolidation unless a breakout occurs.
– **RSI Indicator**: The Relative Strength Index hovered near 46 on the 4-hour timeframe, below the neutral 50 level, signaling possible further downside if no bullish catalyst emerges.
Given the mostly dovish stance recently adopted by the European Central
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