The euro edges higher despite softer data, with focus on US payroll figures looming. The Euro continued its ascent against the US Dollar on Friday, despite lackluster eurozone economic data failing to deter optimism that US interest rates might begin to decrease later this year, potentially as early as September.
In May, German industrial production unexpectedly contracted by 2.5% month-on-month, defying expectations of a 0.2% increase according to official figures. Meanwhile, France reported a larger-than-expected trade deficit of EUR 8 billion ($8.6 billion), exceeding the anticipated EUR 7.2 billion shortfall.
On the surface, these disappointing economic indicators might not suggest a basis for EUR/USD’s seventh consecutive day of gains, but that’s precisely what has transpired.
However, the ultimate determinant will be the forthcoming US payroll data, set to be released later today. Earlier this week, signs emerged indicating a softening labor market as jobless claims rose to 238,000 for the week ending June 29, slightly surpassing forecasts.
Market expectations are currently positioned for an increase of 190,000 nonfarm payrolls for June, significantly lower than April’s robust 272,000 figure, alongside a steady unemployment rate of 4%. Any data that meets or falls short of these projections is likely to reinforce expectations of potential early rate cuts. Conversely, any unexpected improvements could trigger renewed strength in the Dollar, although proponents of the greenback would face considerable challenges in reversing its recent downward trend against several major currencies.
EUR/USD DAILY PRICE CHART
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Since the end of June, EUR/USD has demonstrated a remarkable upward surge, buoyed by a rebound from a well-established uptrend line dating back to October 2023 lows.
Currently, bullish sentiment is targeting resistance at the 1.08438 level, which coincides with the first Fibonacci retracement level of the rise from mid-April lows to the significant high seen on June 4th.
Further upside potential faces a challenge from the downtrend line originating from December 28th, which has historically acted as a ceiling for the market and may continue to constrain upward movement, at least in the medium term. Despite the impressive gains, there are concerns that the Euro’s rally may be outpacing fundamental economic indicators. The Eurozone economy remains sluggish, and the likelihood of additional interest rate cuts is comparable to that in the US.
The extent of any consolidation below current levels will be pivotal for EUR/USD sentiment going forward. A pullback to test nearby support around 1.07964 may not overly concern bulls, as it could be viewed as a healthy correction within an uptrend. However, a deeper decline towards the 1.07 level and below could trigger alarm among market participants, potentially signaling a more significant downturn.
The recent price action reflects EUR/USD’s resilience and the market’s reaction to key technical levels. The uptrend line, stemming from October 2023 lows, has served as a reliable guide for bullish momentum, underpinning confidence in the Euro’s strength against the US Dollar.
Looking ahead, market participants will closely monitor economic data releases and central bank communications for signals that could influence the pair’s trajectory. The Eurozone’s economic outlook remains subdued, with persistent challenges that could weigh on the Euro’s gains if not accompanied by meaningful improvements in economic indicators.
From a technical standpoint, breaking above the 1.08438 resistance level would likely require strong bullish momentum and could pave the way towards testing higher resistance levels. Conversely, failure to sustain upward momentum could lead to a retest of support levels, with particular attention focused on how the market reacts around the 1.07964 support zone.
In summary, while EUR/USD has seen a robust rally recently, driven by technical factors and market sentiment, challenges lie ahead in sustaining further gains. The interplay between technical levels, economic data surprises, and monetary policy developments will be crucial in determining the pair’s direction in the coming weeks. Traders and investors should remain vigilant and adaptable to evolving market conditions to navigate potential opportunities and risks effectively.
