EUR/USD falls below key levels | 02 August 2024

Event to pay attention to today:

15:30 GMT+3. USD - Non-Farm Employment Change

EURUSD:

EUR/USD consolidated above key technical levels on Thursday, dipping below the 1.0800 level, after a miss in the US Purchasing Managers' Index (PMI) data sparked fresh fears of deteriorating economic data pointing to the possibility of a hard landing for the US economy.

European economic data remains sparse for the remainder of the trading week and there will be few significant releases from the EU next week, while broad markets will be fully focused on Friday's US Non-Farm Payrolls (NFP) report for July. Investors are hoping for a moderate decline to 175,000 new US jobs in July from 206,000 last month. A reading that is too high could throw cold water on hopes of a September interest rate cut, while a reading that is too low would heighten fears that the US economy is slowing too fast and could tip into recession.

The markets are trying to balance on the edge of a very sharp knife, as a deterioration in economic data is helping to push rate cut expectations further up. According to the CME's FedWatch tool, traders are pricing in a 100% chance of a quarter-point cut on 18 September, while the odds of a double 50bp cut are one in five. On the other hand, too much of a downturn would destroy market sentiment, as a hard landing scenario for the US economy would make any Fed cut inappropriate. Investors are in a difficult middle ground, hoping for a rate cut when the data is soft, but not so soft as to turn the US economy around.

US initial jobless claims for the week ending 26th July rose to 249k from 235k the previous week, completely blowing away forecasts for an increase to 236k. The US ISM Manufacturing Purchasing Managers' Index (PMI) for July fell to an eight-month low of 46.8 from the previous reading of 48.5, completely blowing away forecasts for an increase to 48.8.

On the other side of the coin, the ISM manufacturing PMI for July rose to 52.9 from 52.1, completely missing forecasts for a decline to 48.8, as producer prices came in higher than markets expected, even as activity contracted.

Trade recommendation: We follow the level of 1.0800, when fixing above it we take Buy positions, when rebounding we take Sell positions.

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