At the end of last week’s trading, the euro surged by approximately 1%, surpassing the resistance level of 1.0926 before closing the week around 1.0910. EUR/USD Analysis Toda This unexpected gain was driven by the overall weakness of the US dollar, fueled by concerns over the strength of the US economy following a disappointing jobs report.
The report has sparked speculation that the Federal Reserve might need to cut US interest rates three times this year, rather than twice as previously anticipated.
Meanwhile, traders are anticipating at least two interest rate cuts by the European Central Bank (ECB) this year, with the next cut likely in September. ECB official Yannis Stournaras highlighted the possibility of inflation falling below the 2% target due to the struggling Eurozone economy.
Economic data showed the annual rate of inflation in the Eurozone unexpectedly accelerated to 2.6% in July, while service inflation declined for the first time in three months. Preliminary estimates revealed that the Eurozone economy expanded by 0.3% in the second quarter, driven by growth in France, Italy, and Spain, though the German economy contracted unexpectedly.
The slightly higher-than-expected inflation data has sustained concerns about persistent inflation, despite market expectations of further ECB interest rate cuts in September. HSBC economist Fabio Balboni noted, “It’s a tricky print for the ECB, as commodity deflation is nearing its end and service inflation remains elevated.”
Service sector inflation fell to 4.0% from 4.1%, and ABN Amro expressed optimism: “This kind of decline bodes well for the medium-term inflation outlook.”
On the stock market front, European stocks extended losses. Both the Stoxx 50 and Stoxx 600 indexes closed down 2.8% on Friday after the US jobs report came in weaker than expected, adding to concerns about a slowdown in the US economy. EUR/USD Analysis Toda Earlier, a large contraction in the US manufacturing sector and mixed earnings results from Apple and Amazon had already weighed on investor sentiment.
Institutionally, shares in the Eurozone’s largest company by market value, ASML, fell 11.2%, tracking a global sell-off in the chip sector. Siemens dropped 4%, and Schneider Electric fell 4.8%. The financial services sector also saw declines, with Santander losing 5.5%, while UniCredit, Intesa Sanpaolo, and BNP Paribas fell between 5% and 3%.
Over the week, the STOXX 50 index declined by 3.7%, and the STOXX 600 index fell by 2.8%.
EUR/USD Technical Analysis and Forecast:
The recent EUR/USD bounce lacks the momentum to confirm a bullish trend, which will be confirmed only if it settles above the psychological resistance of 1.1000. We expect a quiet trading week within narrow ranges following recent central bank announcements and economic data results. We still prefer to sell the EUR/USD from every bullish level. Based on daily chart performance, the support level of 1.08 remains a significant barrier to any attempt to bounce higher.
