EUR/USD Forecast: Euro remains bullish despite mixed PMI data

EUR/USD trades comfortably above 1.1100 in the European session on Thursday.
Euro manages to stay resilient against its rivals after PMI data.
S&P Global PMI figures will be watched closely by market participants.

EUR/USD preserved its bullish momentum on Wednesday and reached its highest level since July 2023 above 1.1170. Following a short lasting downward correction in the early European session, the pair holds steady at around 1.1150.

Euro PRICE This week

The table below shows the percentage change of Euro (EUR) against listed major currencies this week. Euro was the strongest against the US Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-1.11%	-1.36%	-1.44%	-0.80%	-1.20%	-1.96%	-1.75%
EUR	1.11%		-0.32%	-0.28%	0.32%	-0.18%	-1.03%	-0.65%
GBP	1.36%	0.32%		-0.10%	0.61%	0.13%	-0.64%	-0.35%
JPY	1.44%	0.28%	0.10%		0.57%	0.19%	-0.43%	-0.47%
CAD	0.80%	-0.32%	-0.61%	-0.57%		-0.43%	-1.13%	-1.00%
AUD	1.20%	0.18%	-0.13%	-0.19%	0.43%		-0.69%	-0.49%
NZD	1.96%	1.03%	0.64%	0.43%	1.13%	0.69%		0.24%
CHF	1.75%	0.65%	0.35%	0.47%	1.00%	0.49%	-0.24%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

The data from Germany showed on Thursday that the private sector's economic activity contracted at an accelerating pace in early August, with the HCOB Composite PMI dropping to 48.5 from 49.1 in July. Commenting on the surveys' findings, "the anticipated recovery in the second half of the year is failing to take shape," said Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank. "The anticipated interest rate cuts by the ECB, expected by most analysts, might lift spirits a little, but it’s clear that the overall mood remains poor."

On a positive note, HCOB Composite PMI for the Eurozone improved to 51.2 in August from 50.2 in July. In the same period, the HCOB Services PMI jumped to 53.3 from 51.9. "The boost largely comes from a surge in services activity in France, with the Business Activity Index jumping by almost five points, likely linked to the buzz surrounding the Olympic Games in Paris," Dr. Cyrus de la Rubia explained.

In the second half of the day, S&P Global will release preliminary Services and Manufacturing PMI data for August. In case the Services PMI unexpectedly drops below 50, investors could reassess the possibility of a 50 basis points Federal Reserve (Fed) rate cut in September and make it difficult for the US Dollar (USD) to find demand. On the other hand, an upbeat PMI report could support the USD and cap EUR/USD's upside.

EUR/USD Technical Analysis

EUR/USD trades in the upper half of the ascending regression channel but the Relative Strength Index (RSI) indicator on the 4-hour chart stays above 70, suggesting that the bullish bias remains intact with a possibility of a technical correction in the near term.

On the downside, 1.1100 (lower limit of the ascending channel) aligns as strong support before 1.1060 (static level) and 1.1030 (50-period Simple Moving Average). In case the pair stabilizes above 1.1150 (mid-point of the ascending channel), 1.1170 (static level) could act as interim resistance before 1.1200 (upper limit of the ascending channel).

Euro FAQs

What is the Euro?

The Euro is the currency for the 20 European Union countries that belong to the Eurozone. It is the second most heavily traded currency in the world behind the US Dollar. In 2022, it accounted for 31% of all foreign exchange transactions, with an average daily turnover of over $2.2 trillion a day. EUR/USD is the most heavily traded currency pair in the world, accounting for an estimated 30% off all transactions, followed by EUR/JPY (4%), EUR/GBP (3%) and EUR/AUD (2%).

What is the ECB and how does it impact the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy. The ECB’s primary mandate is to maintain price stability, which means either controlling inflation or stimulating growth. Its primary tool is the raising or lowering of interest rates. Relatively high interest rates – or the expectation of higher rates – will usually benefit the Euro and vice versa. The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

How does inflation data impact the value of the Euro?

Eurozone inflation data, measured by the Harmonized Index of Consumer Prices (HICP), is an important econometric for the Euro. If inflation rises more than expected, especially if above the ECB’s 2% target, it obliges the ECB to raise interest rates to bring it back under control. Relatively high interest rates compared to its counterparts will usually benefit the Euro, as it makes the region more attractive as a place for global investors to park their money.

How does economic data influence the value of the Euro?

Data releases gauge the health of the economy and can impact on the Euro. Indicators such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can all influence the direction of the single currency. A strong economy is good for the Euro. Not only does it attract more foreign investment but it may encourage the ECB to put up interest rates, which will directly strengthen the Euro. Otherwise, if economic data is weak, the Euro is likely to fall. Economic data for the four largest economies in the euro area (Germany, France, Italy and Spain) are especially significant, as they account for 75% of the Eurozone’s economy.

How does the Trade Balance impact the Euro?

Another significant data release for the Euro is the Trade Balance. This indicator measures the difference between what a country earns from its exports and what it spends on imports over a given period. If a country produces highly sought after exports then its currency will gain in value purely from the extra demand created from foreign buyers seeking to purchase these goods. Therefore, a positive net Trade Balance strengthens a currency and vice versa for a negative balance.

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