EURUSD Outlook: ECB Rate Cut vs U.S. Macro Developments

Bullish Factors:

ISM Manufacturing PMI recorded contractionary metrics
JOLTS Job openings dropped below expectations
ADP Non-Farm Employment change dropped below expectations
ECB 25 bp rate cut is likely to be priced in tomorrow

Bearish Factors:

ISM Services PMI is expected to record expansionary metrics later today
Non-Farm Payrolls are expected to record a positive change of 11K on Friday

Global inflationary pressures are assumed to ease down with the significant slide of oil prices, favoring central bank rate cut decisions. The market has potentially priced in tomorrow’s 25 bp ECB rate cut, and a higher weight can be allocated towards the monetary policy statement given no surprising expectations.

From the perspective of U.S. economic data, the outlook of the economy’s growth and activity this week is on a bearish streak, with key economic indicators reporting negative results. The ISM Manufacturing PMI dropped further into contractionary metrics, and the ISM services PMI is next in sight for a potential positive result after it has dropped below expectations for the past three months. Given the dominating bearish sentiment on the dollar charts, bullish sentiment is evident on the Euro charts.

From a technical perspective:

EURUSD Outlook: EURUSD – Daily Time Frame – Logarithmic Scale

Taking the Fibonacci extension tool from the October 2023 low, December 2023 high, and April 2024 low:

1.0914: stands as a barrier for the EURUSD’s uptrend prior to its continuation
1.0944: aligns with the 50% extension level
1.1025: aligns with the 61.8% extension level

From the downside, the 1.0830 and 1.0790 levels can provide short-term support and the 1.0730 level is next in sight for a potential longer-term support.

--- Written by Razan Hilal, CMT

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