The EUR/USD exchange rate entered the new week's trading in full swing near its highest levels in two months, but it is quickly losing momentum and may now be at risk of slipping back to the psychological support of 1.08 or lower if the Asia-Pacific currencies weaken and if the results of the economic data led the US dollar to strengthen again. In the first trading session of a short week, the euro/dollar currency pair moved between the support level of 1.0870 and the resistance level of 1.0932, and settled around the level of 1.0910 at the time of writing.
The Euro recovered and remained buoyant throughout the European session on Monday but quickly lost ground in the North American trading session as early recovery in Chinese and Japanese exchange rates faltered.
Commenting on this, Kenneth Brooks, FX Analyst at Societe Generale, said that: “Stronger yuan pegs by the People's Bank of China (PBoC) last week failed to curb offshore selling, but the CNH started the new month trading on a slightly stronger footing in the wake of the CNH data Caixin PMI Private Better Than Expected.
“The People’s Bank of China (PBoC) fixed the yuan peg at about 310 pips stronger on the reform. Buying decline in the CNH yuan remains unconvincing. It was reported on Friday that the recent fluctuations in the yuan were still within a "reasonable range" and did not cause market panic,” he added.
Most currencies were moderate as the US dollar strengthened, after the Institute for Supply Management (ISM) manufacturing PMI survey indicated a deepening recession in the manufacturing sector last month after declines in new orders, prices and employment in particular. The report was a precursor to Thursday's findings from the latest survey of the largest and most important services sector, which consensus indicates will cast the world's largest economy as heading into recession in June.
ISM polls punctuate the release of the US Employment Changes and Labor Force Turnover Survey for May, which is closely watched by US interest rate setters at the Federal Reserve, and is followed on Friday by the US Nonfarm Payrolls report for June. But if Monday's survey and price action in EUR/USD are any guide, this week's US data could be more of a downside risk for the euro than anything else especially if European economic numbers continue to confuse economists' forecasts.
Overall, European economic data is limited in volume this week and is overshadowed by the US showing with retail sales figures for May coming out of the continent on Thursday, although the single European currency may be vulnerable if data indicates weakness in consumer spending. Continental economic data results have been declining steadily in recent months, but the weakness was mainly confined to the manufacturing sector and parts of the economy concerned with exports of goods, while services were a bright spot for many countries. Any sudden drop in retail sales on Thursday would be a big change in European data, but the extent of its impact on the euro will likely come down to whether financial markets see it as reducing the need or scope for further rate increases by the ECB.
“ rates suggest EUR/USD selling at 1.05 — and the stock market is arguing buying EUR/USD at 1.10,” says Jordan Rochester, forex analyst at Bank Nomura. That was why he was restricted to the darn range.” “We expect the euro to outperform by buying EUR/USD, with a target of 1.12 by the end of August,” he added.
EUR/USD Technical Outlook
- There is no change in my technical point of view for the performance of the price of the EUR/USD currency pair, only the performance on the daily chart below.
- The slope is still bearish, and the break below the support level at 1.0885 supports the bears' control over the trend.
- On the other hand, and for the same time period, the bulls will not have new control over the direction without stability above the psychological resistance at 1.1000.
I expect the EUR/USD to continue moving in narrow ranges until the markets and investors react to the announcement of the contents of the minutes of the last meeting of the Federal Reserve Bank, and then the US job numbers.
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