EUR/USD outlook turns negative ahead of busy week for USD

Following the US bank holiday on Tuesday, the EUR/USD has been unable to find any love so far in today’s session, with rates remaining below the 1.09 handle and threatening to head lower. The short-term EUR/USD outlook appears to be a tad bearish and the single currency might weaken further in the event the upcoming US top-tier data proves to be better than expected. We will have the closely-followed ISM services PMI on Thursday, followed by the June nonfarm payrolls report, while the latest CPI report will be published next week. Together, these data releases should be the deciding factor behind a hike or hold in US interest rates later this month. For now, the USD remains on the front-foot and barring any big downside surprises in US data, the greenback might be able to gains further ground in the short-term outlook.

In terms of the remainder of today’s session, the focus will be on FOMC meeting minutes, due for release shortly, although they are unlikely to tell us anything different to what we have already heard from several Fed officials that have spoken since their meeting in June. More important for the dollar will be incoming data. Unfortunately, there are not many macro pointers scheduled for release today, with factory orders being the exception. We will have ISM services PMI and ADP employment data on Thursday to look forward to, before the focus turns to the nonfarm jobs report on Friday.

EUR/USD outlook: technical analysis

The EUR/USD outlook appears to be bearish at least in the short-term outlook, after the previous bullish momentum ended without a higher high. With price moving below 1.09 support, we could some downside follow through now, with 1.0800 likely to be the first downside target for the bears. But there is a possibility we may even see a move down to 1.0600 area in the days ahead should US data surprise to the upside. The bulls, meanwhile, will need to see a decisive close above 1.0900 handle to tip the balance back in their favour.

Source: TradingView.com

 

Coming up…

 

FOMC June meeting minutes

Wednesday, July 5

19:00 BST

We will have the minutes from the June FOMC meeting to potentially provide some spark later on. But if you are looking for any hints of dovishness from the Fed, you probably won’t find that in the minutes. With the Fed being pretty much data-dependant, any major weakness for the greenback would have to come from incoming data. On that front, we have lots to look forward to in the second half of the week…

ISM services PMI

Thursday, July 6

15:00 BST

On Monday, we saw the ISM manufacturing PMI come in well below expectations again (41.8 vs. 44.0) as activity contracted at a faster pace in June compared to May. It dropped to its lowest level since May 2020, at the height of the pandemic.

While the manufacturing sector activity has been weakening, the services PMI has remained above the expansion level of 50.0 for the past three months – albeit, just above. If we start to see renewed strength come into the services sector despite high interest rates, then this should keep the doves at the FOMC quiet for another couple of months at least.

However, if the services PMI also turns lower, then this will raise recession alarm bells, and potentially weigh on the dollar.

 

US non-farm payrolls report

Friday, July 7

13:30 BST

Last week’s data releases were mostly positive, pointing to an economy that is continuing to defy expectations – until the manufacturing PMI indicated otherwise. The jobs market has been particularly strong with nonfarm payrolls data beating expectations in the last 14 months in a row! Will that trend continue? If it does, it will mean interest rates will likely remain higher for longer. This could benefit the US dollar in the short-term, even if high rates for longer might be something that could ultimately hurt the economy at some later point in time.

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R