The EUR/USD pair is facing challenges in holding the key support level of 1.1100 during Tuesday’s European session, following a sharp decline on Monday. The currency pair remains under pressure after the release of September’s flash HCOB Purchasing Managers Index (PMI) data, which has raised expectations for a second consecutive interest rate cut by the European Central Bank (ECB) in its upcoming meeting.
The PMI report revealed that business activity unexpectedly fell into contraction, with the index dropping below the pivotal 50.0 threshold that distinguishes growth from contraction. The decline was primarily driven by a significant slowdown in the manufacturing sector, where contraction accelerated faster than anticipated. Although the service sector continues to grow, it is doing so at a slower pace than economists had predicted.
Weakening activity prospects in the Eurozone pose additional challenges for ECB policymakers, who are already concerned about persistent price pressures. Last week, ECB Governing Council Member Isabel Schnabel highlighted that stubborn services inflation is keeping overall inflation elevated.
In today’s session, Deutsche Bundesbank President Joachim Nagel is scheduled to speak at 16:00 GMT, potentially offering insights into the ECB’s interest rate strategy for the remainder of the year.
Market Overview: USD Gains Ground
The EUR/USD remains under pressure as the US Dollar (USD) strengthens following the release of mixed preliminary S&P Global PMI data for September. The US Dollar Index (DXY), which measures the Greenback against six major currencies, seeks to maintain a position above 101.00.
The US S&P Global Composite PMI came in slightly lower at 54.4, compared to August’s final reading of 54.6, as manufacturing activities unexpectedly declined further. Conversely, the S&P Global Services PMI expanded at a faster-than-expected rate of 55.4, although it edged down from 55.7. The agency noted that uncertainty surrounding the Presidential Election is dampening business sentiment, demand, hiring, and investment.
Looking ahead, the outlook for the US Dollar remains uncertain as traders speculate on potential rate cuts by the Federal Reserve (Fed) in November. Market participants anticipate a 50 basis point cut, contingent on upcoming economic data, particularly the next jobs report. According to Citi strategists, the decision will hinge largely on whether price pressures persist, with the Personal Consumption Expenditures Price Index (PCE) for August set to be released on Friday.
Technical Analysis: Key Levels for EUR/USD
Currently, EUR/USD hovers near 1.1100 during European trading hours, finding support close to the 20-day Exponential Moving Average (EMA) around 1.1090. The pair’s outlook remains intact as long as it maintains the breakout from the Rising Channel chart pattern formed on the daily timeframe near the psychological level of 1.1000.
The 14-day Relative Strength Index (RSI) is trending lower at 55, indicating waning momentum. On the upside, the significant resistance level at 1.1200 poses a major hurdle for Euro bulls. A decisive breach above this level could propel the pair towards the July 2023 high of 1.1276. Conversely, on the downside, support levels at the psychological threshold of 1.1000 and the July 17 high near 1.0950 will be crucial.
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