EUR/USD Forecast: US ADP and ISM PMIs Shape Dollar’s Strength

Highlights

• Tuesday’s EUR/USD dipped 0.10% after Monday’s 0.92% fall, settling at $1.04663.
• ECB’s Philip Lane emphasized the significance of services inflation data for the Eurozone.
• Today’s US ADP and ISM figures could shape the Fed’s rate hike decisions; implications abound.

Tuesday Overview

On Tuesday, the EUR/USD declined by 0.10%. Following a 0.92% slide on Monday, the EUR/USD ended the day at $1.04663. The EUR/USD rose to a high of $1.04935 before sliding to a low of $1.04482.

Euro Area Services PMIs in Focus

On Tuesday, ECB Chief Economist Philip Lane discussed the influence of the services sector on euro area inflation. Significantly, Lane said the ECB would look at services inflation data for an extended period.

September services PMIs for Italy and Spain and finalized PMIs for France, Germany, and the Eurozone will garner investor interest.

An upward revision to the Eurozone PMI will likely provide EUR/USD price support. However, investors must consider the sub-components, including prices and employment.

The euro area services sector contributes over 60% to the Eurozone economy. Upward revisions to the PMI and a pickup in the prices subcomponent would support a higher-for-longer ECB rate path.

According to prelim figures, the Eurozone Services PMI increased from 47.9 to 48.4 in September.

Beyond the economic indicators, ECB President Christine Lagarde is also on the calendar to speak. Barring a deviation from the higher-for-longer script, the PMIs will likely impact the EUR/USD more.

US ADP Nonfarm and ISM Non-Manufacturing PMI in the Spotlight

Later today, US ADP nonfarm employment change figures will influence Fed rate hike bets. A higher-than-expected increase will likely support wage growth and consumption. A pickup in consumption may fuel demand-driven inflationary pressures. A hawkish Fed rate path would impact wage growth and consumption.

Economists forecast the ADP to report a 160k increase in employment in September vs. 177k in August.

However, US ISM Non-Manufacturing PMI numbers for September also need consideration. An unexpected increase in the PMI would support a more hawkish Fed interest rate trajectory. The US services sector contributes more than 75% to the US economy. A positive outlook may support wage growth and consumption, and fuel demand-driven inflationary pressures.

Economists forecast the ISM Non-Manufacturing PMI to decline from 54.5 to 53.6. Investors should also consider the sub-components, including employment and prices.

Short-Term Forecast:

Monetary policy divergence remains firmly tilted in favor of the US dollar. However, the US economic indicators must support the need for a hawkish Fed rate path to pressure the EUR/USD.

EUR/USD Price Action

Daily Chart

The EUR/USD remained below the 50-day and 200-day EMAs, affirming bearish price signals.

A EUR/USD return to $1.05 would support a break above the $1.05230 resistance level. Hawkish comments from ECB President Lagarde and an upward revision to the Eurozone services could deliver a breakout.

However, better-than-forecasted US economic indicators would bring the $1.03922 support level into play.

The 14-period Daily RSI at 28.19 shows the EUR/USD sitting in oversold territory.

4-Hour Chart

The EUR/USD sits below the 50-day and 200-day EMAs, reaffirming the bearish price signals. A break above the $1.05230 resistance level would bring the 50-day EMA into play.

However, a failure to return to $1.05 would support a EUR/USD break below the $1.03922 support level.

The 14-period 4-Hourly RSI at 33.23 supports a EUR/USD break below the $1.03922 support level before entering oversold territory.