EUR/USD – ECB may be convinced to hold in September after latest data

  • Eurozone Services PMI falls to 48.3 in August (50.5 expected, 50.9 in July)
  • Eurozone Manufacturing PMI rises to 43.7 in August (42.6 expected, 42.7 in July)
  • Euro testing key support against the US dollar

The data from the eurozone was no more promising, particularly Germany – the bloc’s largest economy – which has had a harder year than most and looks likely to continue to do so going into next year.

There was a slight and unexpected improvement in the manufacturing number, albeit from a very low base and it still remains deep in contraction territory. But services contracted against expectations and the number was some way below forecasts and the July reading.

Interest rate probabilities were pared back in the eurozone this morning too, with traders viewing the meeting in a few weeks as a coin toss between standing pat and another 25 basis point hike. Another hike is far from guaranteed in the cycle and today’s data certainly supports the case for pausing to see what impact past tightening has had.

Is EURUSD heading into bearish territory?

The euro has been falling against the greenback for a month or so now, as have many other currencies as the dollar has performed well on the expectation of US rates remaining higher for longer.


Source – OANDA on Trading View

It’s now fallen back to a level that could tell us whether traders are viewing this as a corrective pattern or a broader reversal. While that is to a large extent a subjective view, there is a train of thought that when it’s trading above the 200-day simple moving average it’s in bullish territory, and below it’s in bearish territory. It’s worth noting there are many other ways to define it too.

The pair is now testing the 200-day SMA from above and this also coincides with the lows from late June and early July. A break of this could be a bearish signal, with the next test coming around the 1.0650-1.07 where the next support level from May coincides with the bottom of the 200/233-day SMA band.

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Craig Erlam

Craig Erlam

Former Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary.

His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News.

Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.