EUR/USD, FTSE Forecast: Two trades to watch

EUR/USD hovers around a 2024 high PMIs in focus

• Eurozone composite PMI is expected to be 50.1
• FOMC minutes as good as confirm a September rate cut
• EUR/USD reached a peak of 1.1175; the RSI is overbought

EUR/USD is edging away from the 2024 high reached in the previous session as the sell-off in the US dollar pauses for a breath and with eurozone PMI data in focus.

The euro is edging lower after German PMI data disappointed, raising concerns over the economic outlook and ahead of euro zone PMI data. Euro area PMI data is expected to reinforce the view that the eurozone economy has stalled.

The eurozone composite PMI is expected to fall to 50.1, down from 50.2 in July. Weak data could fuel ECB rate cut expectations, particularly after ECB policymaker Olli Rehn said on Monday that the central bank may need to lower interest rates again in September due to persistent economic weakness. Stronger-than-expected figures could help boost sentiment.

Markets are pricing in a 90% probability over 25 basis point cut two 3.5% in September.

The US dollar is edging up from a year-to-date lay, but gains could be limited amid expectations that the Federal Reserve will start to cut interest rates in September.

The minutes of the August FOMC meeting showed that a September rate cut was as good as a done deal, with several policymakers even wanting to cut rates in the July meeting.

Meanwhile, data yesterday showed that US payrolls were downwardly revised by 818,000 in the year ending March 2024, showing that the US labor market was weaker than previously reported. This weakness adds to the view that the Fed needs to start cutting rates as the focus shifts to employment from inflation.

Attention will now turn to US PMI data, which is expected to ease—the services PMI is expected to grow at a slightly slower pace in August. Weaker-than-expected PMI data and the downward revision in US payrolls could revive recession worries.

Federal Reserve Chair Jerome Powell's speech tomorrow in Jackson Hole could be critical for setting the tone over the coming week. Investors will be watching closely to see whether he references the weakness in US payrolls as the Feds' attention shifts away from inflation and toward the employment component of the Fed’s dual mandate.

EUR/USD forecast – technical analysis

EUR/USD broke out of its ascending channel, rising above the 1.11 round number and 1.1140, the December 2023 high, before running into resistance at 1.1175. The RSI is in overbought territory, so buyers should be cautious.

Buyers will look to extend the move towards 1.12 and 1.1275, the 2023 high.

On the downside, immediate support can be seen at 1.1140; below here 1.11 comes into play and 1.10.

FTSE rises post FOMC minutes & ahead of UK PMI data

• Fed minutes support a Fed rate cut
• UK Composite PMI is expected to rise
• FTSE trades within a familiar holding pattern

The FTSE and its European peers are edging higher on Thursday as investors way up the minutes from the August FOMC meeting and look ahead to UK PMI data.

The latest Fed minutes reinforced expectations that the Federal Reserve will cut interest rates next month, helping boost global stocks ahead of the Federal Reserve Jackson Hole symposium. At the symposium, Federal Reserve chair Jerome Powell is due to speak and could offer further insight into the Fed’s position as the central bank shifts its focus from inflation toward employment.

Attention is now on UK PMI data, which is expected to show that the service sector grew at a faster pace, rising to 52.8 in August, up from 52.5 last month. The manufacturing sector is expected to hold steady at 52.1. As a result, the composite PMI, which is a good gauge of business activity, is expected to rise modestly to 52.9, up from 52.8. Stronger-than-expected data could support the view that the Bank of England is unlikely to cut interest rates in September.

In company news, JD Sports is trading at around 4% higher after an upbeat trading update. Investors have been concerned about JD after a warning from Nike in June. JD Sports reported a rise of 2.4% in second-quarter underlying sales, marking an improvement on the previous quarter thanks in part to the Euro 2024 football championships and the start of the Paris Olympics. Even so, the retailer remains cautious on the outlook for the rest of the year, given uncertainties surrounding the health of the consumer.

FTSE forecast – technical analysis

The FTSE rebounded from 7914, the August low, rising back into a familiar trading range, capped on the upside by 8370 and on the downside by 8130.

The setup lends itself to a breakout trade. Buyers will look to rise above the 8370-8400 zone to extend gains towards 8480 and fresh all-time highs.

Sellers will need to take out the 8130 level to extend the selloff towards 8070, the multi-month rising trendline, and 8000, the round number.