EUR/USD Outlook: Dismal Business Activity Data Weighs on Euro

• Key Eurozone economies reported activity data below expectations.

• PMI data indicated a contraction in business activity in France and Germany.

• Investors will closely monitor the Fed and ECB policy meetings.

Today’s EUR/USD outlook is bearish. On Monday, the euro experienced a decline as key economies reported activity data below expectations. Consequently, this created unease among markets at the beginning of a week packed with central bank meetings.

Notably, the European currency fell following the release of PMI data, which indicated a contraction in business activity in France and Germany. According to Simon Harvey, head of FX analysis at Monex Europe, slower growth in the Eurozone could reduce the likelihood of attracting the necessary portfolio inflows. Consequently, the euro might not return to its previous range of $1.12 to $1.20 before the Ukraine conflict.

Investors will closely monitor the Federal Reserve’s meeting conclusion on Wednesday throughout the week, followed by the ECB a day later. Expectations are that both central banks will raise rates by 25 basis points. However, the focus lies on their signals regarding their plans for September meetings. The Fed might hint at a potential pause due to softening inflation indicators.

In the past year, Eurozone interest rates have risen by 400 basis points, reaching 3.5%, the highest in 22 years. However, the rates are approaching their peak with cooling headline inflation and a weakening economy. 

Moreover, the consensus for one more rate hike after July is no longer certain, as some ECB hawks suggested that a September increase is not guaranteed. As a result, the ECB might adopt a more cautious approach in its signaling while maintaining a data-dependent stance. 

EUR/USD key events today

Investors will pay attention to the US services PMI for July. This report will indicate business activity in the US services sector.

EUR/USD technical outlook: Bears eye the 1.1005 support level.

On the charts, the EUR/USD has broken below the 1.1105 support level, pushing farther below the 30-SMA. This move has also seen the RSI fall into the oversold region, showing strong bearish momentum. 

Bears took over when the price failed to go above the 1.1250 resistance level. They broke below and retested the 30-SMA before pushing lower. With the solid bearish bias, the price will likely continue lower to the next support level at 1.1005.

Looking to trade forex now? Invest at eToro!

68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money