The EUR/USD currency pair has fallen below the 1.1800 mark, experiencing a 0.49% decline for the second consecutive day. This downward movement follows a significant sell-off in metals last Friday, which strengthened the US Dollar at the expense of the Euro. The nomination of Kevin Warsh to lead the Federal Reserve and positive economic indicators from the US contributed to this trend.
As the pair continues to lose ground, it reflects a broader market sentiment that favors the dollar amidst safe-haven flows spurred by last week”s volatility in metals. The release of strong ISM Manufacturing data has further fueled expectations that the Fed may postpone plans for additional rate cuts. Currently, EUR/USD trades below 1.1800, seemingly on track for a daily close beneath this level.
The overall market mood improved on Monday, yet the US Dollar remains in demand, achieving a two-day gain exceeding 1.40%, as indicated by the US Dollar Index (DXY), which is up 0.46% at 97.60. Diminished expectations for future rate cuts by the Federal Reserve follow the release of solid economic data, including an uptick in manufacturing activity noted by the Institute for Supply Management.
Despite some positive developments in Europe, such as improved German Retail Sales and a slight increase in the HCOB Manufacturing PMI, the Euro”s gains are limited. The PMI remains in contraction territory, signaling ongoing challenges in the Eurozone economy.
The strong performance of the ISM Manufacturing PMI, which surged to 52.6 in January, contrasted sharply with initial predictions of 48.5 and previous month”s contraction at 47.9. This growth in manufacturing activity underscores persistent inflationary pressures, particularly as prices have continued to rise for 16 consecutive months. However, employment figures in the sector remain cautious, indicating a reluctance among firms to expand their workforce.
Data from Germany showed retail sales increased by 0.1% in December, falling short of expectations. Looking ahead, the European docket will include the European Central Bank Lending Survey, inflation data for the Eurozone, and the ECB”s monetary policy meeting. In the US, key releases include the ADP Employment Change for January and various PMIs.
From a technical perspective, the short-term outlook for EUR/USD indicates a bearish trend, especially after breaching the crucial support level at 1.1830 established on July 1. A daily close below 1.1800 could lead to a test of the 50-day Simple Moving Average at 1.1717, with a further support level at 1.1700. Conversely, should the pair manage to stay above 1.1800, traders may anticipate a challenge of resistance levels at 1.1830 and 1.1850, with potential further upside towards 1.1900 and 1.2000.
