EUR/USD hangs near two-week low, below mid-1.0800s ahead of Eurozone PMIs

EUR/USD drifts lower for the second straight day and drops to a nearly two-week low.
The ECB’s dovish outlook continues to undermine the Euro and exerts some pressure.
September Fed rate cut bets cap the USD and should lend support ahead of flash PMIs.

Haresh Menghani FXStreet

The EUR/USD pair prolongs its recent corrective slide from the vicinity of mid-1.0900s, or a four-month high touched last week, and remains under some selling pressure for the second straight day on Wednesday. This also marks the fourth day of a negative move in the previous five and drags spot prices to a nearly two-week low, around the 1.0840 region during the Asian session.

The shared currency is undermined by the European Central Bank's (ECB) downbeat view of the Eurozone's economic prospects and expectations that inflation would keep falling, which left the door for a rate cut in September wide open. The US Dollar (USD), on the other hand, has strengthened to its highest level since July 11 amid an uptick in the US Treasury bond yields. Apart from this, a softer risk tone benefits the Greenback's relative safe-haven status and contributes to the offered tone surrounding the EUR/USD pair.

Meanwhile, the markets seem convinced that the Federal Reserve (Fed) will lower borrowing costs in September and have been pricing in the possibility of two more rate cuts by year-end. This, in turn, could act as a headwind for the US bond yields and the Greenback. Furthermore, traders could unwind the 'Trump trade' amid increasing chances that US Vice President Kamala Harris will clinch the Democratic nomination. This might further contribute to capping the USD upside and lend some support to the EUR/USD pair.

Traders might also prefer to wait on the sidelines ahead of this week's key US macro data – the release of the Advance Q2 GDP print on Thursday and the Personal Consumption Expenditures (PCE) Price Index data. In the meantime, the flash Eurozone/US PMIs will be looked upon for short-term trading opportunities later this Wednesday. Nevertheless, the aforementioned mixed fundamental backdrop warrants some caution before placing aggressive bearish bets around the EUR/USD pair and positioning for further losses.

Economic Indicator

HCOB Composite PMI

The Composite Purchasing Managers’ Index (PMI), released on a monthly basis by S&P Global and Hamburg Commercial Bank (HCOB), is a leading indicator gauging private-business activity in the Eurozone for both the manufacturing and services sectors. The data is derived from surveys to senior executives. Each response is weighted according to the size of the company and its contribution to total manufacturing or services output accounted for by the sub-sector to which that company belongs. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation. The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the private economy is generally expanding, a bullish sign for the Euro (EUR). Meanwhile, a reading below 50 signals that activity is generally declining, which is seen as bearish for EUR.

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Big day of PMIs ahead

In the euro area, June flash PMIs are released. Most respondents will likely have answered after the US-Iran deal, yet the impact of lower oil prices is unlikely to already show up in activity data. We expect manufacturing to edge down to 50.9 (May: 51.6), while we expect services to see a modest improvement to 48.8 (May: 47.7).

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