EUR/USD struggles for direction ahead of PMI data
- Eurozone composite PMI is set to contract further to 49.7
- US services PMI is expected slow to 54.1
- EUR/USD needs to break below 1.1090 for further losses
EUR/USD is holding steady at the start of a key week for central bank rate decisions.
The Federal Reserve and the ECB are set to raise interest rates this week by 25 basis points; however, what comes next will be key. The market is pricing in just one more rate hike from the Fed in this tightening cycle, so they expect a more dovish tone from US central bank.
Meanwhile, the ECB is set to raise rates again this week and could point to another rate hike in September after recently raising inflation forecasts for 2023-2025.
Before the interest rate decisions later in the week, today's attention will be on PMI data from Germany, France, the eurozone, and the US.
The eurozone services PMI is expected to ease to 51.5in July from 52 in June and the manufacturing PMI is expected to hold steady at 43.5. Meanwhile, the composite PMI considered a good gauge for business activity, is set to fall further to 49.,7 after slipping into contraction in June.
Deteriorating PMIs could add to evidence of slowing growth in the region and fuel bets that the ECB could need to apply the brakes on its monetary policy tightening cycle.
Meanwhile, in the US, the manufacturing PMI is expected to hold steady at 46.4, and the services PMI is expected to ease to 54.1 from 54.4. The service sector accounts for more than 70% of the US economy, the market is particularly sensitive to service sector related stats. A weaker-than-expected services PMI could support a more dovish Fed.
EUR/USD forecast – technical analysis
EUR/USD ran into resistance at 1.1275, a 2023 high last week before rebounding lower as bears regained control. The price fell to support 1.1090, which is a key support in the near term.
If this support gives way, sellers could target 1.10, followed by 1.0950, the falling trendline resistance, ahead of 1.0840, the July low.
On the upside, buyers will look to rise above 1.12 round number and 1.1275, the 2023 high.
GBP/USD rises after steep losses last week
- UK services PMI is expected to fall to 53
- US services PMI is set to fall to 54.1
- GBP/USD rises towards 1.2850
GBP/USD is rebounding after losing 1.7% last week, following weaker-than-expected UK inflation data which saw investors reassess the likelihood of a 50-basis point rate hike from the Bank of England next week.
Today GBP is capitalising on a weaker U.S. dollar ahead of PMI data. The UK service sector PMI is likely to draw interest, with the headline figure, input and output prices, and employment subcomponents in focus.
Expectations are for the service sector PMI to pull from 53.7 to 53. The service sector accounts for over 70% of the UK economy, so the markets will be susceptible to the data.
The Bank of England has been vocally concerned about the level of service sector inflation, so the service sector input and output prices will be under the spotlight as well as the employment data, given the tightness in the UK labour market. Fall prices and weaker employment numbers could fuel bets that the BoE could consider taking its foot off the hiking gas.
Meanwhile, the USD is falling after solid gains last week. Stronger than forecast US jobless claims figures added to evidence of a resilient US labor market, boosting the USD.
Today attention is on the US PMI readings, which are expected to show that the service sector growth slowed and manufacturing contracted again.
GBP/USD forecast – technical analysis
GBP/USD ran into resistance at 1.3140, the 2023, earlier in the month before falling to a low of 1.2810 last week.
The price is testing resistance at 1.2850 the 20 sma and the June high. A rise above here could give the bears fresh legs and bring the rising trendline of 1.2960 into focus ahead of 1.30, the round number.
Meanwhile, should sellers successfully defend 1.2850 and take out support at 1.2810, the 100 sma is exposed at 1.2650. A break below here brings 1.26, the late June low, into target.