EUR/USD witnesses a stellar buying interest after posting a fresh weekly low near the crucial support of 1.0800 in Thursday’s European session. The major currency pair capitalizes on a decline in the US Dollar and strong Eurozone preliminary PMI numbers for May.
The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, edges down to 104.77 as the recovery move seems stalling just below the crucial resistance of 105.00. The recovery move in the US Dollar seems fading as investors remain confident that the Federal Reserve (Fed) will start reducing interest rates from the September meeting.
Traders didn’t pare bets supporting Fed rate cuts in September despite hawkish commentary on the interest rate outlook by Fed officials indicated by the Federal Open Market Committee (FOMC) minutes for the May meeting released on Wednesday.
The impact of the FOMC minutes was expected to be temporary on the US Dollar as officials were worried about stalling progress in the disinflation process on the basis of three hot inflation readings of the January-March period. While investors’ firm speculation on rate cuts in September is built on an expected decline in the inflation data indicated by the Consumer Price Index (CPI) report of April.
EUR/USD bounces back strongly after testing the breakout region of the Symmetrical Triangle formed on a daily timeframe. The near-term outlook of the shared currency pair remains firm as the 20-and 50-day Exponential Moving Averages (EMAs) have delivered a bullish crossover around 1.0780.
The 14-period Relative Strength Index (RSI) has shifted comfortably into the bullish range of 60.00-80.00, suggesting that the momentum has leaned toward the upside.
The major currency pair is expected to recapture two-month high around 1.0900. A decisive break above the same will drive the asset towards March 21 high around 1.0950 and the psychological resistance of 1.1000. However, a downside move by the major below the 200-day EMA at 1.0800 could push it inside the woods.
The Composite Purchasing Managers’ Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging private-business activity in the Eurozone for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the private economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for EUR.
Last release: Thu May 23, 2024 08:00 (Prel)
Frequency: Monthly
Actual: 52.3
Consensus: 52
Previous: 51.7
Source: S&P Global