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Analysis

Euro edges higher, US Dollar under pressure

The euro has edged higher on Friday. In the European session, EUR/USD is trading at 1.0994, up 0.21% on the day at the time of writing.

The US dollar is under pressure and the euro rose as much as 1.2% this week before paring about half of those gains. On Wednesday, the euro hit 1.1047, its highest level against the US dollar this year.
Investors are showing greater pessimism about economic conditions. Eurozone investor sentiment fell to 17.9 in August, down sharply from 43.7 a month earlier. This was the lowest reading since November 2023. Germany, the largest economy in the eurozone, showed a similar trend. There are significant uncertainties about the eurozone and German economies and these worries increased due to the recent turmoil in the global stock markets.

Solid US data eases market nerves

Exactly two weeks ago, the US jobs report was weaker than expected, triggering a meltdown across global stock markets. Investors panicked that the US economy was hurtling towards a recession but the markets have recovered courtesy of solid US numbers this week.

US inflation dipped to 2.9% y/y in July, down a notch from 3% a month earlier which was also the market estimate. Retail sales jumped 1% m/m, bouncing back from -0.2% in June and breezing past the market estimate of 0.4%. As well, unemployment claims were lower than the market estimate for a second straight week.

The rout in the financial markets raised expectations for a half-point cut from the Federal Reserve to as high as 60%, but this has fallen to 30% since the retail sales report (a quarter-point has been priced in at 70%). The Fed meets next on September 18 and a rate cut is virtually guaranteed but the size of the cut remains an open question.

EUR/USD technical

  • EUR/USD is testing resistance at 1.0980. Above, there is resistance at 1.1010.

  • 1.0942 and 1.0912 are the next support levels.

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