EUR/USD Forecast: PMIs Pose Risks; Euro Navigates Uncertainty

Highlights

• EUR/USD experienced a 0.02% slip on Thursday, ending at $1.06579.
• ECB’s Philip Lane’s words may significantly sway the EUR/USD outlook.
• US services PMI increase would affirm sentiment toward Fed policy.

Thursday Overview

On Thursday, the EUR/USD slipped by 0.02%. Following a 0.18% loss on Wednesday, the EUR/USD ended the day at $1.06579. The EUR/USD fell to a low of $1.06167 before rising to a high of $1.06736.

Private Sector PMIs and ECB Chatter in Focus

After the ECB rate hike, possibly for a final time, investor focus will be firmly on the macroeconomic environment. Manufacturing and Services PMIs for France, Germany, and the Eurozone will influence the EUR/USD pair.

Economists forecast modest increases in the manufacturing PMIs. However, economists predict a more marked contraction across the euro area services sector.

Economists predict the Eurozone manufacturing PMI to rise from 43.5 to 44.0 and the services PMI to fall from 47.9 to 47.7. The services PMIs will influence the EUR/USD more, with the euro area services sector accounting for more than 60% of GDP.

A more marked decline in service sector activity would put the euro area at risk of a prolonged recession. An elevated interest rate environment curbs consumer spending, further impacting service sector activity.

Beyond the numbers, ECB Chief Economist Philip Lane and ECB Executive Board member Luis de Guindos are on the calendar to speak. Lane will have more influence on the EUR/USD. A deviation from the higher-for-longer interest rate outlook would move the dial.

US Services PMI to Affirm Sentiment Toward Fed Policy Outlook

US private sector PMIs will draw investor interest later today. The services PMI will have more influence on sentiment toward Fed policy bets.

US services sector activity contributes over 75% to GDP. A pickup in service sector activity would fuel demand-driven inflation. Higher interest rates would curb consumption and ease demand-driven inflationary pressures.

Economists forecast the services PMI to increase from 50.5 to 50.6 in September. Hotter-than-expected services PMI numbers would also support bets on the Fed delaying rate cuts until 2025.

Short-Term Forecast:

Monetary policy and economic divergence remain firmly tilted in favor of the US dollar. However, an unexpected contraction across the US services sector could change the narrative. Near-term EUR/USD trends hinge on the services sector PMIs.

EUR/USD Price Action

Daily Chart

The EUR/USD positioned below the 50-day and 200-day EMAs is indicative of bearish price signals.

A more marked contraction across the euro area services sector would support a EUR/USD break below the $1.06342 support level. A break below the support level would bring sub-$1.06 into play.

However, an unexpected contraction across the US services sector would support a EUR/USD return to 1.07. The EUR/USD would need a sharp rise in service sector PMIs to support a move toward the $1.07635 resistance level.

The 14-period Daily RSI at 35.78 supports a EUR/USD break below the $1.06342 support level before entering oversold territory.

4-Hour Chart

The EUR/USD remains below the 50-day and 200-day EMAs, reaffirming the bearish price signals. A break above the 50-day EMA would support a EUR/USD return to $1.07.

However, a EUR/USD fall through the $1.06342 support level would bring sub-$1.06 into play.

The 14-period 4-Hourly RSI at 45.67 supports a EUR/USD fall through the $1.06342 support level before entering oversold territory.