EUR/USD under pressure after soft PMIs

The euro has started the week in negative territory. In the North American session, EUR/USD is trading at 1.1083, down 0.38%. The euro has lost ground for three straight days and has fallen as much as 170 pips since hitting on July 18^th its highest level this year.

German, eurozone PMIs soften

The eurozone recovery is likely to be lengthy, and Monday’s PMIs pointed to a deceleration in the manufacturing and services sectors in July. The eurozone Manufacturing PMI dipped to 42.7, down from 43.4 in June and below the consensus estimate of 43.5 points. The eurozone Services PMI slowed to 51.1, down from 52 and shy of the consensus of 51.5 points.

Germany, the largest economy in the eurozone, posted even worse manufacturing numbers, as the PMI fell to 38.3, down from 40.6 and below the consensus of 41.0 points. The June release is worrying, as manufacturing has decelerated for eight successive months and the reading was the lowest since May 2020. German Services PMI dropped to 51.1, below the May reading of 52.0 and the consensus of 51.5 points. The 50.0 line separates expansion from contraction.

The European Central Bank meets on Thursday, with the deterioration of the eurozone economy in the background. The fears of a winter recession failed to materialize, but economic activity has been dampened by low demand and persistently high inflation. The ECB is widely expected to raise interest rates by 0.25% at the meeting, which would raise the main interest rate to 3.50%. What happens after that is less clear, although the ECB has been focused on high core inflation and could continue to tighten after the July meeting.

In the US, PMI releases for July were mixed. Manufacturing surprised to the upside with a reading of 49.0, beating the June reading of 46.3 and the consensus of 46.2 points. Services decelerated for a second straight month, falling from 54.4 to 52.4 points and missing the consensus of 54.0 points.

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EUR/USD Technical

• EUR/USD is putting pressure on support at 1.1063. The next support level is 1.1002
• 1.1170 and 1.1231 are the next resistance lines

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