Euro to US Dollar analysis: EUR/USD set to lose 2023 gains

• Euro to US Dollar analysis: Rising oil prices could support dollar further
• ISM services PMI unlikely to threat USD’s bullish trend
• Eurozone data continues to deteriorate
• Euro to US Dollar analysis: EUR/USD technical analysis point lower

The EUR/USD looks set to lose its entire gains made earlier this year as it hovers just above the 2023 opening level of 1.0705. On top of a strengthening US dollar, the struggles for Eurozone continue with data after data coming in weaker than expected. This time, it was German factory orders and Eurozone retail sales. And if that’s not enough, crude oil reached $90 per barrel yesterday after the Saudis decided to extend their supply cuts through to year-end, potentially giving a fresh impetus for inflation. Today, the only hope for EUR/USD bulls appears to be the ISM services PMI – should it come in well below expectations. If that doesn’t happen, then the EUR/USD could drop to below the May’s low of 1.0635 next.

Euro to US Dollar analysis: Rising oil prices could support dollar further

On Tuesday, the dollar index (DXY) broke and closed above the May 2023 high of 104.70, which coincided with brent oil breaking the $90 barrier on the Saudi news. We are expecting the dollar’s bullish momentum to remain in place until there is a fundamental trigger to cause a reversal. Meanwhile, the rising oil prices is going to be more of a problem for oil-importing nations, many of which reside in the Eurozone, as well as Japan and India, than the US, which is energy-independent and a net exporter of oil and gas. Therefore, expect the dollar to remain on the front-foot should oil prices continue to climb, ceteris paribus.

ISM services PMI unlikely to threat USD’s bullish trend

This week’s key data from the US is the ISM services PMI, due for release later today. It is expected to print 52.5, down from 52.7 previously.

The dominant service sector PMI has remained above 50 for much of this year, unlike the manufacturing sector PMI. But with sticky inflation expectations and some signs of weakness emerging in the labor market, the PMI could start to weaken and further weigh on bets of another Fed rate hike before the end of the year. Even so, the fact that data outside of the US is even weaker, combined with rising oil prices and a slightly deteriorating risk appetite, the dollar should find continued support on the dips for a while yet.

However, if we see a sharp deterioration in the PMI, say with a reading of sub-50.0, then in that case we may well see a more profound sell-off in the dollar. Next week’s CPI report for August will be key.

Eurozone data continues to deteriorate

The DXY’s strength has undoubtedly been driven by weakness in the yen, more so than the euro. Hence, EUR/USD is yet to break its corresponding May 2023 low of 1.0635. But it could be only a matter of time, judging by how the dollar has been performing of late and given the continued weakness in Eurozone data.

This morning, we saw German factory orders came in at -11.7% for July, more than losing the 7.6% gain in the previous month. The outlook for Germany industrial output doesn’t look great, given that last week the manufacturing PMI fell to 39.1 in August, marking the second-lowest reading since May 2020 and highlighting the extent of the weakness in the sector.

In a clear sign of a struggling consumer, Eurozone retail sales have either fallen or stagnated in each of the past 6 months. After falling 0.3% in June, sales fell by an additional 0.2% in July, once again disappointing expectations.

Euro to US Dollar analysis: EUR/USD technical analysis point lower

So, almost everything points lower for the EUR/USD, suggesting today’s bounce may not hold once again.  The path of least resistance remains to the downside for the EUR/USD, especially after rates closed below the 200-day average on Friday. Given the lower lows and lower highs, and the overall bearish price structure on this pair, it is hard to be bullish on the EUR/USD outlook at these levels. Therefore, I am expecting the now broken support at 1.0766 to offer resistance if we get there later today. The bulls will need to wait for a confirmed reversal signal, as the selling pressure could easily gather momentum with more and more support levels breaking down. A move below the May 2023 low at 10635 looks the more likely outcome than a rally back to 1.10 area.

Source: TradingView.com

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R