EUR/USD: Downward Pressure as US Dollar Strengthens on Robust Jobs Report

Highlights

• Euro pressured by strong U.S. jobs report and potential interest rate hikes.
• Weaker Eurozone data suggests economic slowdown and ECB rate hike concerns.
• U.S. dollar supported by higher Treasury yields and positive jobs report.

Overview

The Euro is facing downward pressure against the U.S. Dollar due to a strong U.S. jobs report, leading to expectations of higher interest rates by the Federal Reserve. Concurrently, weaker-than-anticipated economic data from the Eurozone suggests a potential economic slowdown, raising concerns about the European Central Bank (ECB) decelerating its rate hike pace. The U.S. dollar gained support from higher Treasury yields, bolstered by the impressive increase in jobs reported for May.

Fed Considers June Rate Hike Pause, July Rate Hike

Although wage pressures eased and the unemployment rate climbed from a 53-year low, the Federal Reserve may have room to pause their rate hiking campaign during the upcoming meeting, while the likelihood of the Fed continuing to raise rates ensures ongoing support for the U.S. dollar.

Resilient Services Sector Drives Eurozone Expansion

Despite a decline in the Eurozone’s manufacturing sector, the dominant services industry exhibited resilience and contributed to a positive expansion in the Eurozone during the second quarter. Although the Composite Purchasing Managers’ Index (PMI) for May fell to a three-month low, indicating a slightly slower rate of economic growth, the services sector experienced rising demand, leading to increased employment. This sector benefits from a strong labor market, rising wages, and a thriving tourism industry throughout Europe.

Overall cost pressures decreased, reflected in lower output prices and a decline in composite input and output prices indexes.

German Exports Rise, Eurozone Growth PMI Slows

In addition, German trade surplus unexpectedly widened, with exports rising and imports falling in April. However, Eurozone business growth slowed, as indicated by the Composite PMI. Furthermore, the Eurozone’s Producer Price Index for April fell short of expectations. The Eurozone Sentix Investor Confidence index also declined in June, suggesting a decrease in investor optimism compared to the previous month.

Short-Term Outlook:  Bearish

The short-term outlook for the EUR/USD appears to be bearish. The Euro’s decline against the U.S. Dollar is influenced by several factors, including the robust U.S. jobs report and expectations of higher interest rates by the Federal Reserve. Weaker economic data from the Eurozone and the possibility of the ECB reducing its rate hike pace further contribute to the downward pressure on the Euro.

Meanwhile, the U.S. dollar is benefiting from higher Treasury yields, which adds to its strength. Although the services sector in the Eurozone remains resilient and contributes to economic expansion, overall cost pressures have decreased. Additionally, Eurozone business growth has slowed, and the Producer Price Index and Investor Confidence index have fallen short of expectations. These factors collectively indicate a bearish outlook for the EUR/USD in the short term.

Technical Analysis

The EUR/USD is trading lower on Monday, but on the bearish side of 1.0807 (PIVOT).

The inability to overcome 1.0807 (PIVOT) will signal the presence of strong sellers. This could trigger a resumption of the downmove with 1.0522 (S1) the next support target.

With the  trend down, sellers are likely to come in on the first test of 1.0807 (PIVOT). However, overtaking it will indicate strong counter-trend buying with 1.0979 (R1) the next target.

For a look at all of today’s economic events, check out our economic calendar.