EUR/USD Continues Its Downward Spiral Amid Economic Woes...

7 sept. 2023

EUR/USD Continues Its Downward Spiral Amid Economic Woes

Introduction

The EUR/USD currency pair is on a downward trajectory, with the euro taking a hit as it hovers near three-month lows. This decline comes as the European Central Bank (ECB) maintains a silence period ahead of its upcoming monetary policy meeting. While the eurozone grapples with fears of a recession, the US is dealing with soft landing concerns, and hawkish comments from the Federal Reserve (Fed) are further compounding the euro's woes. As traders eagerly await key economic data, such as German Industrial Production (IP) for July and the final readings of Eurozone Gross Domestic Product (GDP) for Q2, the EUR/USD pair faces a multitude of challenges.

Eurozone Economic Woes

The euro's recent struggles can be attributed to a slew of downbeat economic data coming out of the eurozone. German Factory Orders and Eurozone Retail Sales have both disappointed, raising doubts about the ECB's hawkish bias. ECB President Christine Lagarde's efforts to defend this bias fell flat in the face of these disappointing figures. Even as several ECB officials made last-ditch attempts to reassure markets about the central bank's ability to raise interest rates, their efforts failed to instill confidence.

US Dollar Resilience

In stark contrast to the euro, the US dollar has shown resilience, buoyed by positive economic indicators. The surprise uptick in ISM Services PMI, coupled with the absence of negative details in S&P Global PMIs for August, has helped bolster confidence in the US economy. Hawkish Fed talks, along with the Fed's Beige Book suggesting a soft landing in the US, have also contributed to the dollar's strength.

Global Factors at Play

Global tensions, particularly between the US and China regarding trade conditions and Taiwan, have added to the gloomy sentiment surrounding the EUR/USD pair. Additionally, concerns about softer economic performance in major economies outside the US have led to increased demand for the US dollar as a safe-haven currency.

Market Indicators

S&P 500 Futures have been under pressure, declining for the fourth consecutive day. The US 10-year Treasury bond yields are hovering near a two-week high, while the two-year counterpart has seen its first daily loss in four days. The US Dollar Index (DXY) remains strong, trading near a six-month high, at approximately 104.93 at the time of writing.

Conclusion

In conclusion, the EUR/USD currency pair is facing multiple headwinds, making the US dollar the preferred choice for investors. The ECB's silence period, coupled with disappointing eurozone economic data, has left the euro struggling. Meanwhile, positive US economic indicators and hawkish Fed commentary have bolstered the US dollar's appeal. With today's focus on key US economic catalysts, the EUR/USD pair is likely to continue experiencing volatility in the near term.



Our preference

We continue to Hold the position below 1.0770 with target at 1.0680 in extension.