EUR/USD faced sharp selling pressure and fell to near the crucial support level of 1.1100 due to poor Eurozone preliminary Purchasing Managers’ Index (PMI) data for September, as well as a strong rebound in the US Dollar. The Eurozone Composite PMI contracted unexpectedly to 49.0, indicating a slowdown in economic activity driven by weaknesses in the manufacturing sector and slower expansion in the service sector. This decline has raised concerns about a potential further interest rate cut by the European Central Bank (ECB) in October.
Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, expressed concerns about the Eurozone economy heading towards stagnation, with the Composite PMI falling below the expansionary threshold. The decline in new orders and order backlogs point to a potential further weakening of the economy. ECB policymakers are becoming increasingly concerned about inflation persisting, with Vice President Luis de Guindos emphasizing the need for more data on a slowdown in order to consider further interest rate cuts.
The US Dollar has gained ground despite expectations for a larger-than-usual 50 basis points (bps) interest rate cut by the Federal Reserve (Fed) in November. The likelihood of a 50 bps rate cut has increased, while a Reuters poll suggests a 25 bps cut in both November and December meetings. Fed Governor Michelle Bowman, who voted for a 25 bps rate cut, highlighted concerns about stoking overall demand with a larger reduction when inflationary pressures have yet to reach the bank’s target. US economic data, including the S&P Global Composite PMI for September, showed weakening activity in the manufacturing sector offset by better service sector performance.
From a technical analysis perspective, EUR/USD has fallen below 1.1100 and is expected to find interim support near the 20-day Exponential Moving Average (EMA) around 1.1090. The currency pair’s outlook remains firm as long as it holds above the Rising Channel chart pattern near the support of 1.1000. The 14-day Relative Strength Index (RSI) suggests weakening momentum, with major resistance at 1.1200 and support at 1.1000 and 1.0950.
The S&P Global Composite PMI, which gauges US private-business activity in the manufacturing and services sectors, serves as a leading indicator of economic trends. The index, surveying senior executives on changes compared to the previous month, plays a vital role in predicting trends in GDP, industrial production, employment, and inflation. A reading above 50 indicates economic expansion, while a reading below 50 signals contraction, impacting the strength of the US Dollar.
In conclusion, the sharp decline in EUR/USD can be attributed to weak Eurozone data and a strong US Dollar, leading to concerns about potential interest rate cuts by the ECB. Meanwhile, speculation continues about the Fed’s interest rate decisions, with conflicting views on the magnitude of rate cuts. Technical analysis and economic indicators such as the S&P Global Composite PMI provide valuable insights into the currency pair’s performance and broader economic trends. Investors and traders should closely monitor these factors to make informed decisions in the currency markets.
