- After attempts to rebound higher with gains that extended the EUR/USD exchange rate towards the 1.0695 resistance level, its highest level in a month, the currency pair returned to stability on its broader downward path around less than the 1.0600 level.
- Recently, the euro has been under pressure after the Purchasing Managers’ Index numbers in the Eurozone, which indicated the economic contraction in the euro zone accelerated at the beginning of the fourth quarter of the year.
- That’s after private sector output fell at the highest rate in more than a decade (excluding the pandemic), according to S&P Global.
Bearish Trend Persist Supported by Negative Data
Overall, manufacturing remains in a deep freeze, with a reading of 43 reported in S&P's global PMI survey in October, lower than the 43.7 reading the market had expected and the reading of 43.4 in September. As for the services sector -which was the sector that supported growth- it finally succumbed to the rise in interest rates with their decline to a reading of 46.5 from a reading of 47.2 previously and a reading of 47.4 expected. Moreover, the composite PMI, which accounts for the broader economy, came in at 47.8, down from a reading of 48.7 in September and below expectations for a reading of 48.7. For its part, Standard & Poor's Global says that companies in the euro area reported that new orders decreased at an accelerated rate, which indicates a deteriorating demand environment for goods and services.
Commenting on the data and reaction, Alex Kuptsikevich, senior market analyst at FxPro says, “EUR/USD lost nearly 0.5% shortly after the data was released,”. Adding, “PMI has proven to be a reliable indicator of the economic cycle for investors in currency and stock markets.” concluding, “The latest preliminary estimates for October were disappointing, showing a deepening of the recession rather than the expected improvement.”
Overall, these results will reinforce expectations that the European Central Bank (ECB) will pause its interest rate hike cycle, given evidence that the economy is now witnessing a material slowdown. At the same time, the data represents a negative growth surprise consistent with the decline in euro exchange rates.
Generally, fading expectations for further interest rate hikes by the ECB will also weigh on the euro outlook, especially given a PMI survey that found companies reduced employment levels in October, marking the first decline in headcount since lockdowns in October. Early 2021. Therefore, these results will provide evidence that the Eurozone Labor market is declining, which is contractionary and supports the ECB's view of raising interest rates. Downside risks to the euro will accumulate if the market presents expectations of an interest rate cut in 2024.
For its part, the European Central Bank will welcome news that inflation in goods and services moderated slightly in October, falling to its lowest level since February 2021. The continuing sharp decline in manufacturing selling prices was accompanied by a moderation in selling price inflation in the services sector, according to wipe.
EUR/USD Today Expectations
The broader trend of the EUR/USD is still bearish and stability around the support level of 1.0550 confirms the strength of the bears’ control and portends a stronger downward move to come. Nearby, according to the performance on the daily chart below, the EUR/USD currency pair will not have a chance to break through the general trend without moving towards the resistance levels of 1.0720 and 1.0800, respectively. Notedly, the rebound gains for the EUR/USD will remain an opportunity to sell if global geopolitical tensions persist, with which investors prefer to buy safe havens, the most important of which is the US dollar.
Worth noting, the euro/dollar will be affected today by the announcement of the German IFO reading, then new American home sales, and ending with statements by European Central Governor Lagarde and US Federal Reserve Governor Jerome Powell.
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