EUR/USD retreats from 1.0900 on risk aversion and USD strength

• Global market sentiment is cautious, with equities down and bond yields up, as investors anticipate further monetary tightening from central banks.
• The Fed’s July Minutes show a unanimous decision in favor of a rate hike, but growing wariness among board members about excessive tightening.
• US data: Initial jobless claims slightly better than expected, 239,000; the Philadelphia Fed manufacturing index for August shows an improvement.
• The Eurozone reports a trade surplus of 23 billion euros, exceeding expectations. The Harmonized Consumer Price Index (IPCA) for July will be published shortly.

EUR/USD posts modest losses for the fifth day in a row, widening its gap from 1.0900 amid a risk-off momentum spurred on by the Federal Reserve (Fed) meeting minutes as well as economic slowdown fears from China.

Federal Reserve Minutes and China’s economic slowdown weigh on the pair, while positive US data and EU trade balance provide limited support

Market sentiment remains bearish, with global equities down and bond yields up. Investors continue to believe that central banks could further tighten monetary conditions.

Fed minutes for July showed board members unanimously raised rates, though some leaned towards neutrality, expressing concern about raising rates too much. Most policymakers continue to see upside risks to inflation, though officials are taking a cautious approach to setting monetary policy, stressing they would consider the “totality” of the data to “help clarify to what extent the disinflation process was continuing.”

Following Wednesday’s data release, the Atlanta Fed’s GDPNow model puts US GDP for the third quarter of 2023 at around 5.8%, up from 4.1% on August 8. In view of these data, the swap market has shown an increase in the chances of a 25 basis point rate hike by the Federal Reserve at the next meeting in November.

On Thursday, the US Bureau of Labor Statistics (BLS) showed initial claims for last week’s jobless benefits, which fell to 239,000, slightly below forecasts of 240,000. At the same time, the Philadelphia Fed released figures for the manufacturing sector, which came in below forecasts. At the same time, the Philadelphia Fed Manufacturing Index for August improved, with numbers reaching 12, exceeding the -10 contraction expected by analysts.

In the Eurozone (EU), the trade balance showed a surplus of 23,000 million euros, exceeding estimates of 18,300 million. Before the weekend, the EU will report the Harmonized Index of Consumer Prices (HICP) for July, with estimates of 5.3% YoY and 0.3% MoM. The core IPCA is expected to hold steady at 5.5% yoy.

EUR/USD Price Analysis: Technical Insights

EURUSD is set to test the July 6 daily low at 1.0833 in the short term. However, EUR/USD should reach 1.0800, followed by the 200-day moving average (DMA) at 1.0787. Below this last level, further declines are expected, as the psychological level of 1.0700 would be next. Conversely, the first resistance for EUR/USD lies at 1.0900, followed by the 50-day DMA at 1.0974.