EUR/USD faced selling pressure in the European session on Friday as it dropped sharply to 1.0670 due to weak preliminary Eurozone PMI data for June and the strength of the US Dollar. The Composite PMI unexpectedly declined to 50.8 from the previous release of 52.2, with the Manufacturing PMI falling further into contraction territory. Political uncertainty in France has also contributed to the Euro’s weakness, with worries about the potential financial impact of a National Rally-led government.
Investors are closely monitoring the European Central Bank’s (ECB) monetary policy decisions, with ECB Governing Council member Klaas Knot suggesting that one or two more rate cuts may occur this year. The ECB cut interest rates for the first time in seven years at the June meeting. Additionally, the US Dollar has been strengthening due to expectations of widening policy divergence between the Federal Reserve and other central banks, prompting the US Dollar Index to reach a seven-week high near 105.85.
Prospects of further policy divergence have been reinforced by expectations that the Fed will reduce interest rates starting in September, while the ECB, Bank of Canada, and Swiss National Bank have already entered a policy-easing phase. Fed policymakers have signaled only one rate cut this year, but market speculation of two rate cuts has increased due to higher-than-expected declines in US inflation and slower growth in Retail Sales. In Friday’s session, investors will focus on the US S&P Global PMIs data for June.
Technically, EUR/USD has slid below 1.0700 and is trending towards the Symmetrical Triangle pattern on a daily time frame. The pair is below the 200-day EMA, indicating an uncertain long-term outlook. The 14-period RSI suggests a downside momentum as it dips below 40.00 for the first time in almost two months.
The HCOB Composite PMI is a key economic indicator gauging private-business activity in the Eurozone for the manufacturing and services sectors. Derived from surveys to senior executives, the index can anticipate changing trends in official data series such as GDP, industrial production, employment, and inflation. A reading above 50 signals expansion while a reading below 50 indicates contraction, impacting the strength of the Euro. The most recent data released on Friday showed a decline to 50.8, lower than market expectations of 52.5.
In conclusion, the EUR/USD pair is facing pressure from weak Eurozone data and a strong US Dollar. Political uncertainty in France and expectations of more rate cuts by the ECB add to the Euro’s woes. The Fed’s divergence in policies from other central banks further supports the US Dollar’s strength. Technical analysis indicates a bearish outlook for the pair, with the HCOB Composite PMI reflecting the ongoing challenges in the Eurozone economy. Investors will continue to monitor key economic indicators and central bank decisions for further insights into the forex market.
