EUR/USD: What influence could the US PMI data have?

EUR/USD outlook: focus on US PMI data

Today's release of the S&P Global US Manufacturing, Composites and Services PMIs for July will be a pivotal event for EUR/USD. Publication is expected at 15:45. This data, which provides a real-time overview of the health of the US economy, has a significant impact on market sentiment and therefore on currency dynamics.

Chart: tradingeconomics.com – S&P Global US Manufacturing PMI above

The manufacturing PMI in the United States rose to 51.60 points in June from 51.30 points in May 2024. The manufacturing PMI in the United States averaged 53.33 points from 2012 to 2024, reaching an all-time high of 63.40 points in July 2021 and a record low of 36.10 points in April 2020.

Impact of the US PMI data on the EUR/USD

The US PMI data series is an important barometer of economic activity and influences investors' expectations of the Federal Reserve's monetary policy. A higher-than-expected reading usually reinforces expectations of sustainable economic growth and potential inflationary pressures, which could prompt the Fed to maintain or even tighten monetary policy. Conversely, weaker-than-expected data could fuel speculation about an economic slowdown and lower inflation risks, potentially leading to a more accommodative Fed stance.

The EUR/USD is very sensitive to interest rate differentials between the United States and the Eurozone. A more hawkish Fed stance usually strengthens the USD due to higher interest rate expectations, which puts downward pressure on the EUR/USD. Conversely, a more accommodative outlook from the Fed can weaken the USD and support the EUR, leading to an appreciation of the EUR/USD.

Possible scenarios

• Stronger than expected PMI data: If today's PMI data significantly exceeds market expectations, it could support the US dollar. Investors could expect a more resilient U.S. economy, which could lead to higher interest rates. This scenario is likely to weigh on the EUR/USD and push it lower.
• Weaker than expected PMI data: A disappointing PMI result could trigger a decline in the US dollar. Market participants could reassess the economic outlook and expect a less aggressive stance from the Fed. This environment could be supportive of the EUR/USD and potentially lead to a move higher.
• In line with expectations: If the PMI data is in line with the market consensus, the impact on the EUR/USD could be limited. However, even a slight deviation from expectations can trigger market reactions, especially if it is accompanied by other economic indicators or geopolitical events.

Additional factors

It is important to note that while the US PMI data is a crucial factor, it is not the only determinant of the EUR/USD currency pair's movements. Other variables such as geopolitical risks, global trade tensions, and the overall economic health of the eurozone can also affect the currency pair.

Recent developments in the Eurozone, including the monetary policy stance and the European Central Bank's (ECB) economic indicators, will also play a role in shaping EUR/USD dynamics. A divergence in monetary policy between the Fed and the ECB can amplify the influence of US economic data on the currency pair.

Current situation of the EUR/USD

This daily chart for EUR/USD shows several technical indicators used to measure market sentiment:

• Moving averages: EMA (9, 20, 50), SMA (100).
• Relative Strength Index (RSI): Currently at 52.33.
• Stochastic RSI: At 30.13, crossing at a lower level.
• Fibonacci retracement levels: Key levels at 0.236, 0.382 / 0.5 / 0.618 / 0.786.

Current market analysis

Trend analysis: The pair is currently trading in the middle of the range defined by the Fibonacci retracement levels between 1.0530 and 1.1000. Recently, some upward momentum has been visible, as a bounce from the Fibonacci level of 0.618 at around 1.0800 occurred.

RSI indicator: At 52.33, the RSI is in neutral territory. A move above 70 could indicate an overbought condition, while a move below 30 could indicate an oversold condition.

Stochastic RSI: The current reading of 30.13 suggests that the bearish momentum may be slowing down. An upward cross from this level could indicate that the bullish momentum is returning.

Conclusion

Today's release of the US PMI data is an event of great significance for the EUR/USD. While the potential impact is difficult to predict with certainty, the data is likely to lead to significant volatility in the forex market. Traders and investors should keep a close eye on the data and its impact on the United States and Eurozone economies.

The EUR/USD has the potential for a bullish move from the current levels based on the support at the Fibonacci level of 0.618 and the neutral to bullish signals on the RSI and Stochastic RSI. It is recommended to watch the key levels and wait before entering the trade.