EUR/USD, Oil Forecasts: Two trades to watch

EUR/USD rises but gains could be limited

• Eurozone manufacturing PMI was 45.8 in August
• Trading volumes could be low due to US Labor Day
• EUR/USD found support at 1.1050

EUR/USD is rising after falling over 1% in the previous week. However, today’s gains may be capped given that both the Federal Reserve and the ECB are expected to cut interest rates later this month.

Data on Friday showed that eurozone inflation cooled to 2.2%, down from 2.6%.  ECB governing council member Francois de Galhau said on Friday that there were good reasons for the central bank to consider cutting interest rates in September. Meanwhile, data today supported this view further, with manufacturing PMI confirming contraction this month, 45.8, down from 45.6.

Today's trading volumes may be low owing to the US Labour Day holiday. After a quiet start to the week, things are expected to pick up with plenty of data as we approach the US nonfarm payroll report on Friday.

The data comes after US core PCE, the Fed's preferred gauge for inflation, supported the view that the Federal Reserve will start to cut rates, most likely by 25 basis points, and as the Fed’s gaze shifts from inflation towards risks in the labor market.

Investors will watch the non-farm payroll data more closely than usual for any signs that the US economy could be heading for a recession, particularly after July's big miss.

The market is fully pricing in a Fed rate cut of 25 basis points in the September meeting and is pricing in a 30% probability that the Fed could cut rates by as much as 50 basis points.

EUR/USD forecast – technical analysis

After running into resistance at 1.1250, the price corrected lower, falling below the 1.1140 December 23 high before finding support at 1.1050.

Buyers will look to retake 1.11 ahead of 1.1140 before bringing 1.12 back into focus.

Support is at 1.1050. Sellers would need to break below 1.10 to negate the near-term uptrend.

Oil struggles on Chinese demand concerns & OPEC+ output worries

• Chinese official manufacturing PMI fell to a 6-month low
• OPEC+ is set to begin increasing production in October
• Oil struggles below 75.00

Oil prices are holding steady after falling 1.7% in the previous week, the third straight weekly decline.

Oil prices remained under pressure on Monday amid expectations of higher OPEC production starting next month and signs of weak Chinese demand.

The OPEC group is set to proceed with planned increases in oil output starting next month. According to sources, 8 OPEC+ members are expected to increase production by 180,000 barrels per day in October as they start to unwind the supply cuts of 2.2 million barrels per day.

There are concerns that an increase in production could negatively impact the delicate demand-supply equation, pulling prices lower.

Furthermore, this increase in production could also come at a period when the global economy is showing signs of slowing and China’s demand outlook deteriorates.

Data over the weekend showed that Chinese manufacturing activity sank to a six-month low in August as factory gate prices tumbled and owners struggled to fill orders. That said, the Caixin manufacturing PMI came in slightly better than expected, returning to growth, albeit weakly at 50.6.

Meanwhile, recent EIA data showed that consumption in June fell to a seasonal low last recorded during the pandemic.

Looking ahead today, volumes could be below owing to the US Labour Day holiday. Attention will be on inventory data later this week for clues over demand in the US and US manufacturing PMI and non-farm payroll data.

Oil forecast – technical analysis

Oil trades below its falling trendline. The price ran into resistance at the 200 SMA and has rebounded lower towards support at 72.70, the June low. Sellers will need to remove this support to extend losses towards 71.50, the August low.

Any recovery would need to rise above 77.70 the 200 SMA and falling trendline resistance. Above here, 80.00 comes into focus.