EUR/USD: PMI could bring volatility

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The Euro-Dollar pair sets up in a period of neutrality, torn between contrasting signals on both sides of the Atlantic. In the euro zone, the composite PMI index was 50.9 in July, against 50.6 in June, reflecting a slightly expanding activity, but still below its long -term average. The growth remains modest, drawn mainly by services – especially in Italy and Spain – while Germany rebounds timidly. France, on the other hand, displays an eleventh consecutive month of contraction.

Despite an anemic domestic request and exports in decline for the 41st consecutive month, companies in the European block have been chasing their hires at an unprecedented rate for more than a year. Cost pressures come in the services, but selling prices are slightly on the rise. This context confirms the scenario of a new monetary easing of the ECB by the end of 2025, after the pause marked in July.

On the American side, the publication of a disappointing employment report has profoundly changed monetary policy expectations. Goldman Sachs for example provides for three rate drops in September, or even a reduction of 50 base points if the tensions on employment worsen. The markets integrate a probability of 92 % of a drop in rate from the next FOMC meeting. This tilting is accentuated by institutional turmoil around the Fed: the dismissal of the director of the Bureau of Labor Statistics and the resignation of the Adriana Kugler governor feed fears of increasing political interference.

In this double context-structural weakness in the euro zone and monetary uncertainty in the United States-the euro struggles to find a clear direction. If the growth differential remains in favor of the United States, the change of tone of the Fed could ultimately limit the appreciation of the dollar. This afternoon, the burners will scan the American PMI clues, likely to revive volatility to the foreign exchange market.

Finally, from a technical point of view, the euro evolves in a range defined between 1.14 and 1.18; The release of this area will serve as a signal for the next directional movement.

Medium term

In view of the key graphic factors that we have mentioned, our opinion is neutral in the medium term on Euro dollar parity (Eurusd).

We will keep this neutral opinion as long as the courses of Euro Dollar parity (EURUSD) are positioned between the support at 1,1460 USD and the resistance to 1,1674 USD.

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