In the middle of this week's trading, the euro fell 1.47% against the dollar and became vulnerable to more losses, says analyst Fouad Razakda of City Index. He said that it is no secret that the Eurozone economy is not doing well, with the outlook looking bleaker by the day. And the fact that the EUR/USD pair is trading at its lowest levels since 2022, reflects this miserable overall outlook. The losses of the EUR/USD pair extended to the 1.0161 support level, its lowest since 2002, and is stable around its losses in the beginning of Thursday's trading.
The reason for the euro's decline... is the weakness caused by rampant inflation, concerns about energy and rising borrowing costs. We have seen consumer, corporate and investor sentiment all take a big hit, with the PMIs also falling. Coupled with this, persistent tensions between Europe and Russia over natural gas supplies mean that business sentiment in Germany in particular is unlikely to improve any time soon. This will keep the manufacturing sector under pressure. Meanwhile, the European Central Bank's determination to fight inflation will continue as interest rates rise. This will have a price, but they have no other choice. Overall, it is a vicious cycle. The threats of waning economic growth and stubborn inflation are supposed to undermine risky assets.
This is exactly why German investor sentiment has hit a new record. That's what the latest Sentix poll revealed on Monday. And there was more bad news from Germany. The eurozone's largest economy reported its first monthly trade deficit in three decades. Clearly, higher import prices had the biggest impact, with prices for energy, food and parts used by manufacturers up more than 30% in May compared to a year ago.
But it also points to weak demand from abroad, which comes as no surprise given how much the economic outlook has deteriorated in recent months.
The question now is: Where is the next for the EUR/USD pair?
It is clear that the overall stronger trend for the EUR/USD is to the downside and we could soon talk about 1.02, then 1.01 and so on. And something has to change fundamentally to turn the tide. Any recovery we get in the meantime will be primarily driven by short coverings. The major resistance now forms the basis for today's breakout and former support around the 1.0350 region.
Looking ahead, the focus will shift to the US as we delve deeper into the first full week of July and the third quarter. The highlight in the middle of the week's trading was the announcement of the minutes of the last meeting of the Federal Open Market Committee (FOMC) which is in sharp focus as investors try to discover exactly how optimistic each member is and how they see interest rates developing in the coming months. Then, on Friday, the monthly US non-farm payrolls report will put the dollar and gold in focus. The non-farm payrolls report has become less important to the markets as the focus has shifted to inflation and economic growth rather than employment. Thus, the only thing that will be important from the jobs report is the wage portion. Workers will demand higher wages to keep up with inflation.
EUR/USD Technical Outlook
The general trend of the EUR/USD pair is still stronger to the downside. Investors will not care about the arrival of technical indicators towards oversold levels as far as interacting with the factors of the gains of the US dollar and the continued faltering of the euro. As I mentioned before, the Russian-Ukrainian war will remain an extension of the negative pressure factors on the euro for a longer period as long as the war continues. The closest bearish targets are currently 1.0135 and then the parity price for the currency pair.
On the other hand, bulls need to gain momentum as soon as moving towards the 1.0600 resistance as is the performance on the daily chart below to make a first breakout of the current trend. The euro-dollar will be affected today by the announcement of the US jobless claims and the statements of a number of US monetary policy officials.
