Euro Forecast: EUR/USD Digests Data, Core PCE on Tap

EUR/USD Key Points

Soft IFO and PMI data has traders worried about a slowdown in Europe.
Meanwhile, weak Durable Goods Orders are offsetting a strong Q2 US GDP report.
EUR/USD is trying to stage a bounce off the 38.2% Fibonacci retracement of the late-June to mid-July rally.

After a quiet start to the week, the economic calendar has taken center stage over the last 24 hours.

In today’s European session, the IFO Business survey declined to 87.0 from 88.6, marking its third consecutive decline and the weakest reading since February. In the wake of the disappointing PMI figures yesterday, traders are now pricing in about a 95% chance that the European Central Bank cuts interest rates at its meeting in September.

Across the Atlantic, the US economy failed to take advantage of the weakness in the euro area. Though the Q2 Advance GDP report was stronger than expected at 2.8% vs. 2.0% anticipated, it’s worth highlighting that this is one of the most lagging of all economic indicators, so it tends to have a relatively limited impact on markets. At the same time, the more timely Initial Jobless Claims (235K, roughly as expected) and Durable Goods Orders (-6.6% m/m, far worse than expected and the weakest since May 2020) reports painted a more subdued picture of current US economic activity.

On balance, this run of US economic data has traders fully discounting a 25bps interest rate cut from the Fed in September and an outside chance (~15%) of 50bps in reductions by then. In other words, both the ECB and Fed are seen as all-but-certain to start cutting interest rates in September, so the key question for EUR/USD will be which central bank is more aggressive in easing monetary policy through Q4 and into early 2025.

Euro Technical Analysis – EUR/USD 4-Hour Chart

Source: TradingView, StoneX

Technically speaking, EUR/USD has transitioned from a near-term uptrend through the first 3 weeks of July into a near-term downtrend over the last week. As we go to press, the pair is trying to stage a bounce off the 38.2% Fibonacci retracement of the late-June to mid-July rally.

With US Core PCE still on the calendar tomorrow, we may well get a definitive move off that support zone ahead of the weekend. A bounce and break out of the bearish channel could set up a near-term rally toward 1.0900 next, whereas a clear break of the 1.0840 support zone quickly exposes the 50% Fibonacci retracement near 1.08 or the 61.8% Fibo at 1.0775 next.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.