EUR/USD Forecast: Time to turn down again? All eyes on top-tier US data

EUR/USD has staged an impressive recovery – but doubts about its sustainability are creeping in. The relief rally has been heavily dependent on dollar weakness – which may now be coming to its end amid trade optimism. 

US trade representative Robert Lighthizer and treasury secretary Steven Mnuchin have spoken with Chinese Vice Premier Liu He on the phone and discussed resuming face-to-face meetings. This news – accompanied by reports that China is set to stimulate its economy – have improved the market mood. And when stocks rise, bonds are sold off, resulting in higher yields. In turn, higher US yields imply lower chances of substantial monetary stimulus from the Federal Reserve and support the greenback.

Fed officials have sent mixed messages in recent days. John Williams, president of the New York branch of the Federal Reserve, has said that the US consumer is alone in carrying the US economy – a point emphasized in the recent growth figures. Williams has signaled that he is willing to cut interest rates by 25 basis points later this month. Some prefer leaving rates unchanged, while others prefer a 50bp reduction. 

Fresh data coming out of Germany this morning has also contributed to halting the euro's rise. Factory orders plunged by 5.6% in July – far worse than 1.1% expected. While the data set is volatile – it is another important warning sign for the euro zone's locomotive. 

The European Central Bank convenes in one week, and pressure to inject significant stimulus is rising.

Critical US data eyed

Today, investors are focused on top-tier economic indicators. ADP's private-sector jobs report serves as a hint toward Friday's official employment report. A moderate increase of around 150,000 positions is on the cards for August – similar to July's rise. 

See US ADP Employment Preview: Good numbers, weakening trend

Shortly afterward, ISM's Purchasing Managers' Index for the services sector will be closely watched. An increase from 53.7 to 54 points is expected for August – reflecting ongoing expansion. However, markets may fear weaker data after the manufacturing PMI fell to 49.1 points – the lowest since 2016 and representing contraction. 

See US Services Purchasing Managers’ Index: The recessionary turn approaches

Overall, concerns about economic performance on both sides of the Atlantic and trade developments are eyed.

EUR/USD Technical Analysis

EUR/USD continues enjoying upside momentum on the four-hour chart – but that is about the only thing supporting the pair. It has been rejected at the 50 Simple Moving Average, which comes out around 1.1040 at the time of writing. EUR/USD also trades below the 100, and 200 SMAs and the Relative Strength Index (RSI) is turning down.

Support awaits at the psychologically important 1.1000 level. IT is followed by 1.0960, which was a swing low on Friday, and then by the 2019 trough of 1.0926. Further down, 1.0900 and 1.0820 await EUR/USD.

Immediate resistance awaits at the daily high of 1.1040. Next, we find 1.1065, which provided support twice in mid-August. The next cap is 1.1090, that crushed a recovery attempt in late August.