EUR/USD encountered selling pressure during Friday’s European session, tumbling to a six-week low near 1.0670 as the Euro weakened on disappointing preliminary PMI data from the Eurozone, indicating a slowdown in economic momentum.
The HCOB PMP report, issued by S&P Global, revealed that the Composite PMI unexpectedly dropped to 50.8 in June from the previous reading of 52.2. Although the index remained above the crucial 50.0 mark that separates expansion from contraction, the Manufacturing PMI fell deeper into contraction territory while the Service PMI showed slower growth compared to the previous month.
“New orders declined for the first time in four months, leading to softer expansions in business activity and employment. Business confidence also dipped to its lowest level since February,” noted the report.
Adding to the Euro’s woes is political uncertainty in France, where concerns over potential economic impacts arise amid expectations of Marine Le Pen’s National Rally potentially forming a government after legislative elections. The party’s manifesto includes proposals for reduced retirement age, lower energy prices, increased public spending, and protectionist economic policies.
On the monetary policy front, market sentiment towards the Euro is influenced by expectations regarding further interest rate cuts by the European Central Bank (ECB). ECB Governing Council member Klaas Knot indicated comfort with market forecasts of one or two rate cuts later this year, following the ECB’s recent decision to cut rates for the first time in seven years.
Market Dynamics and Technical Outlook
In response to the Euro’s weakness, the US Dollar has shown strength, pushing the US Dollar Index (DXY) to nearly a seven-week high around 105.85. This rise reflects increasing policy divergence between the Federal Reserve (Fed) and other G7 central banks. The Fed is expected to reduce rates starting from September, contrasting with easing policies already implemented by the ECB, Bank of Canada (BoC), and Swiss National Bank (SNB), and anticipated by the Bank of England (BoE).
EUR/USD technical analysis indicates a correction below the critical support level of 1.0700, with the pair approaching the upper boundary of a Symmetrical Triangle pattern on the daily chart. The long-term outlook has become uncertain as EUR/USD trades below the 200-day Exponential Moving Average (EMA) around 1.0800. The Relative Strength Index (RSI), falling below 40.00 for the first time in nearly two months, suggests momentum favoring the downside.
Investors are now eyeing the upcoming US S&P Global PMIs for June, expected to show a decline but remain above 50, indicating a slowdown in both manufacturing and services sectors. This data release could further influence market sentiment and direction in the EUR/USD pair.
In conclusion, Eurozone economic concerns, coupled with political uncertainties and diverging central bank policies, continue to weigh on EUR/USD, driving the pair lower in today’s trading session.
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