The recent macroeconomic data imbalances have the potential to benefit the US Dollar and take a toll on the Euro. Despite maintaining a bullish bias in the daily chart, the EUR/USD pair edged lower in the fourth week of July, trading around 1.0850.
Tepid European Data
European data has been tepid, reflecting the risk of a recession. The Hamburg Commercial Bank reported that the private sector in Europe is near stagnation, with manufacturing output shrinking and the Composite PMI falling to its lowest in five months. The German private sector economy also slipped into contraction, leading to concerns of a worsening performance.
The European Central Bank (ECB) has trimmed rates to address these challenges, with expectations of a second interest rate cut in September to prevent a recession.
United States Economic Outlook
In contrast, the United States has seen more encouraging macroeconomic data. The S&P Global flash PMI data shows business activity growth at its fastest pace in 27 months in July, with the services sector outperforming manufacturing. The preliminary estimate of Q2 GDP also exceeded expectations, growing at an annualized pace of 2.8%.
Despite positive data, the Federal Reserve (Fed) is expected to keep interest rates unchanged next week, with investors looking for signals of a potential rate cut in September.
EUR/USD Technical Outlook
The EUR/USD pair shows a neutral-to-bullish stance on the weekly chart, with technical indicators holding within positive levels. The daily chart indicates a bullish trend, with technical indicators bouncing from midlines and a bullish 20 SMA providing dynamic support.
As long as the pair holds above 1.0800, the odds of a bearish extension are limited. Resistance levels are at 1.0947 and 1.1000, with potential gains towards 1.1080 and 1.1140.
Analysis and Conclusion
The recent macroeconomic data imbalances highlight the contrasting economic conditions between Europe and the United States. While Europe faces challenges of stagnation and potential recession, the US shows signs of growth and resilience.
Investors should monitor the ECB’s actions in response to European economic challenges and the Fed’s decisions on interest rates in the US. The EUR/USD pair’s technical outlook suggests a potential for bullish momentum, but downside risks remain if key support levels are breached.
Overall, understanding these macroeconomic trends and their impact on currency pairs like EUR/USD can help individuals make informed decisions about their investments and financial strategies.