Title: EUR/USD Under Pressure: Fragile Recovery Faces Renewed Bearish Threat
Author: Adapted and expanded from the original article by Yohay Elam, FXStreet
The EUR/USD currency pair remains on unstable footing, as recent gains exhibit signs of weakness and bearish pressures resurface. The pair briefly rebounded from multi-month lows, offering a glimmer of hope to euro bulls, but technical and macroeconomic indicators suggest this recovery might be short-lived.
In this expanded overview, we explore the current state of the EUR/USD pair, assess fundamental drivers, incorporate supportive insights from other forex analysts, and analyze technical outlooks to evaluate the direction of the world’s most traded currency pair. Ultimately, the euro remains vulnerable amidst persistent dollar strength, ongoing monetary policy divergence, and mixed economic data from both regions.
Current Market Overview
After reaching a 10-month low near 1.0450 earlier this month, EUR/USD staged a limited bounce to the 1.0600 zone. However, that recovery lacks momentum and appears more like a correction within a broader downtrend than the beginning of a sustainable bullish reversal.
Several factors are weighing on the pair:
– Continued strength in the US dollar driven by high Treasury yields and hawkish Fed rhetoric.
– Weak economic data in the Eurozone, notably Germany, its largest economy.
– A shrinking interest rate differential between ECB and Fed expectations, with the ECB nearing a pause.
– Capital flows favoring US assets as recession risks mount in Europe.
US Dollar: Relentless Resilience
Recent resilience in the US dollar has been bolstered by robust economic data, a firm jobs market, and Federal Reserve officials maintaining a hawkish stance on interest rates. As yields on US Treasury bonds, particularly the 10-year note, continue climbing near 16-year highs, investor demand for USD-denominated assets persists.
The Fed’s “higher for longer” messaging is central to the dollar’s dominance. September’s Federal Open Market Committee (FOMC) meeting projections suggested one more hike before the end of 2023 and fewer cuts in 2024 than previously expected. With inflation cooling slower than desired, core metrics remain sticky, supporting the Fed’s cautious stance.
Key supporting fundamentals from the US include:
– September’s Non-Farm Payrolls (NFP) data exceeded expectations with 336,000 new jobs added.
– Wage growth remained moderate, slightly countering inflation concerns.
– ISM Services PMI remained above 50, signaling ongoing expansion in the services sector.
According to a recent statement by San Francisco Fed President Mary Daly, while the Fed may soon pause rate hikes, restrictive policy may remain in place well into 2024. This narrative keeps the dollar supported, especially as Europe grapples with stagnation.
Eurozone Economic Malaise
In contrast, the Eurozone economy continues to struggle. The European Central Bank (ECB) raised rates to 4.50 percent last month, the highest in over two decades, but also signaled that it could be the peak of the tightening cycle for now.
Economic indicators from across the region suggest softness:
– Germany’s manufacturing PMI remains in contraction territory below 45.
– Retail sales data across the Eurozone disappointed, declining 1.2 percent month-over-month in August.
– Inflation is slowing; headline CPI fell to 4.3 percent in September from 5.2 percent in August, reinforcing an outlook of policy peaking.
– Anemic wage growth and high unemployment in southern Europe dampen consumer demand.
ECB President Christine Lagarde confirmed that the governing council “stands ready to respond if inflation pressures resurface,” but markets read this as dovish amid signs of a cooling economy.
Technical Outlook: Bearish Signals Prevail
The EUR/USD price chart reflects the economic divergence between the US and the Eurozone. The pair recently attempted to break above the 1.0600 level but was quickly pushed below by selling pressure.
Important technical signs include:
– EUR/USD remains
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