Euro Faces Selling Pressure Against US Dollar as EUR/USD Dips Below 1.1000

In the first half of the week, the Euro (EUR) encountered persistent selling pressure against the US Dollar (USD), resulting in a decline of the EUR/USD pair below the crucial 1.1000 level on turnaround Tuesday.

Conversely, the USD remained resilient, supporting the USD Index (DXY) in its bid to breach the significant resistance around 102.00. This strength in the US Dollar prevailed despite minimal movement in US yields across the yield curve and seemed reinforced by the overall weakness in riskier assets.

Moving forward, investors will focus on pivotal economic data releases from both the United States and Europe, which are likely to test the recently emphasized data-dependent approach adopted by the Federal Reserve and the European Central Bank (ECB) in their decisions on interest rates.

In Europe, all eyes are on the final Manufacturing Purchasing Managers’ Index (PMI) figures for July, along with Germany’s labor market report, including the broader euro area’s jobless rate.

In the United States, the primary attention will be on the ISM Manufacturing PMI, accompanied by the final Manufacturing PMI and Construction Spending data.

Recent economic data showed that the Eurozone experienced growth in the second quarter, while inflation decreased in July. Eurostat reported a second-quarter GDP growth of 0.3%, surpassing the market consensus of 0.2%. Headline inflation declined from 5.5% to 5.3% year-over-year, aligning with expectations. However, the core inflation rate exceeded expectations, standing at 5.5%. Another report indicated that Germany’s retail sales fell by 0.8% in June, compared to the consensus of a 0.2% decline.

These mixed data do not present a definitive game-changer for the European Central Bank (ECB). While inflation slowed, the core rate remained elevated, and services prices stayed high. Regarding GDP, the avoidance of a contraction is positive, but the growth was marginal. Market pricing indicates that the odds of another rate hike during the September meeting are currently below 40%. On Tuesday, the final Manufacturing PMIs are scheduled for release, along with the German Unemployment rate.

The US Dollar demonstrated mixed performance on Monday, appreciating against the Euro, Pound, and Yen, while simultaneously weakening against the Australian Dollar (AUD), Canadian Dollar (CAD), and New Zealand Dollar (NZD). This likely reflects some risk appetite and a rebound in commodity prices. US data revealed the Chicago PMI at 42.8 in July, below the market consensus of 43, and the Dallas Fed Manufacturing Business Index at -20, exceeding the expected -26.3.

Looking ahead, a series of labor market data releases are scheduled, starting with the JOLTS Job Openings, followed by ADP on Wednesday, Jobless Claims on Thursday, and the Nonfarm Payrolls on Friday. These releases will play a crucial role in shaping the market sentiment and influencing the USD’s trajectory for the week.