- EUR/USD jumps near 1.1000 as US Dollar plummets on US economic slowdown fears
- Upbeat US ISM Services PMI provides support to the US Dollar.
- Persistent inflation in the Eurozone has dampened market expectations of further ECB rate cuts.
The EUR/USD pair marks a fresh seven-month high around the psychological resistance of 1.1000 in the American session on Monday. The major currency pair strengthens as the US Dollar (USD) plunges amid growing speculation that the Federal Reserve (Fed) could announce emergency rate cuts as risks have widened to both components of the dual mandate.
The Dollar Index (DXY), which tracks the value of the greenback against six major currencies, plummeted to 102.20. Meanwhile, asset-specific action has been seen across global markets. Global stocks continue to face a sell-off, while currencies perceived as risky have rebounded strongly due to the weakness of the US Dollar.
However, the US Dollar has found intermediate support following the upbeat US ISM Services PMI. The PMI report showed that services sector activity rose to 51.4 from expectations of 51.0 from the previous release of 48.8.
Upside risks to a slowing US economy have deepened as job demand has eased and the unemployment rate has risen to its highest level since November 2021.
On the Eurozone front, persistent inflationary pressures in July have raised doubts about expectations of subsequent rate cuts by the European Central Bank (ECB).
EUR/USD is attempting to make a breakout of the channel formation on a daily time frame. A breakout of the mentioned chart pattern results in larger ticks to the upside and heavy volume. The 200-day exponential moving average (EMA) near 1.0800 acted as a major support for the Euro bulls.
The 14-day Relative Strength Index (RSI) is rising above 60.00. If the RSI sustains above 60.00, it will trigger a bullish momentum.
Further upside would appear if the major currency pair breaks above the intraday high of 1.1009. This would take the asset towards the August 10, 2023 high of 1.1065, followed by the round-level resistance of 1.1100.
In an alternative scenario, a move below the August 1 low at 1.0777 would drag the asset towards the February low near 1.0700. A break below the latter would expose the asset to the June 14 low at 1.0667.
EUR/USD: Daily Chart
Euro FAQs
The Euro is the currency of the 20 European Union countries that belong to the Eurozone. It is the second most traded currency in the world, behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily volume of over $2.2 trillion per day. EUR/USD is the most traded currency pair in the world, accounting for an estimated 30% of all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).
The European Central Bank (ECB), based in Frankfurt, Germany, is the reserve bank of the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s main mandate is to maintain price stability, which means controlling inflation or stimulating growth. Its main instrument is to raise or lower interest rates. Relatively high interest rates – or the expectation of higher rates – generally benefit the Euro and vice versa. The Governing Council of the ECB takes monetary policy decisions at meetings held eight times a year. Decisions are taken by the heads of the national banks of the Eurozone and six permanent members, including ECB President Christine Lagarde.
Eurozone inflation data, as measured by the Harmonised Index of Consumer Prices (HICP), is an important econometric data point for the euro. If inflation rises more than expected, especially if it exceeds the ECB’s 2% target, the ECB is forced to raise interest rates to bring inflation back under control. Relatively high interest rates compared to their peers usually benefit the euro, as it makes the region more attractive as a place for global investors to park their money.
Data releases measure the health of the economy and can influence the Euro. Indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment, but it can encourage the ECB to raise interest rates, which will directly strengthen the Euro. Conversely, if economic data is weak, the Euro is likely to fall. Economic data from the four largest Eurozone economies (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone economy.
Another important output for the euro is the trade balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports during a given period. If a country produces highly sought-after export products, its currency will appreciate due to the additional demand created by foreign buyers who wish to purchase these goods. Therefore, a positive net trade balance strengthens a currency and vice versa for a negative balance.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
