EUR/USD faced a significant drop to 1.0670 as a result of the weak preliminary Eurozone PMI data for June and the strong performance of the US Dollar. The Eurozone’s Composite PMI unexpectedly declined to 50.8 in June, below expectations, indicating a loss of momentum in the economy. This decline was driven by a decrease in new orders, leading to softer expansions in business activity and employment. Additionally, business confidence dipped to its lowest level since February.
Moreover, political uncertainty in France, the Eurozone’s second-largest economy, added to the Euro’s woes. Investors are concerned about the potential financial implications of the National Rally’s (RN) government, led by Marine Le Pen, if they come into power after legislative elections. The RN has proposed policies such as lowering the retirement age, cutting energy prices, increasing public spending, and implementing “France first” economic strategies.
In terms of monetary policy, investors are closely monitoring the European Central Bank (ECB) and its potential interest rate cuts. ECB Governing Council member Klaas Knot mentioned the possibility of one or two more rate cuts this year, in line with market expectations. The ECB recently cut interest rates for the first time in seven years at its June meeting.
On the other hand, the US Dollar has been strengthening due to expectations of widening policy divergence between the Federal Reserve (Fed) and other central banks. The Fed is expected to start reducing interest rates from the September meeting, with a potential additional rate cut later in the year. In contrast, central banks like the ECB, Bank of Canada (BoC), and Swiss National Bank (SNB) have already entered a policy-easing phase. Market speculation of two Fed rate cuts this year was further fueled by a higher-than-expected decline in US inflation and slower growth in Retail Sales.
Looking ahead, investors will be paying close attention to the US S&P Global PMIs data for June to gauge the growth in manufacturing and services sectors. The Composite PMI is expected to decline but remain above the 50 level, indicating a slowdown in growth.
In terms of technical analysis, EUR/USD has slid below the crucial support of 1.0700 and is approaching the upward-sloping border of the Symmetrical Triangle pattern. The pair’s long-term outlook has become uncertain as it trades below the 200-day Exponential Moving Average (EMA), while the 14-period Relative Strength Index (RSI) suggests a downside momentum.
Overall, the Eurozone faces various challenges, including weak economic data, political uncertainty, and diverging monetary policies between central banks. These factors contribute to the volatility in the EUR/USD currency pair and will continue to influence market sentiment in the near term.