Euro Forecast: EUR/USD Digests Data, Core PCE on Tap

EUR/USD Key Points

• Soft IFO and PMI data has traders worried about a slowdown in Europe.
• Meanwhile, weak Durable Goods Orders are offsetting a strong Q2 US GDP report.
• EUR/USD is trying to stage a bounce off the 38.2% Fibonacci retracement of the late-June to mid-July rally.

After a quiet start to the week, the economic calendar has taken center stage over the last 24 hours.

In today’s European session, the IFO Business survey declined to 87.0 from 88.6, marking its third consecutive decline and the weakest reading since February. In the wake of the disappointing PMI figures yesterday, traders are now pricing in about a 95% chance that the European Central Bank cuts interest rates at its meeting in September.

Across the Atlantic, the US economy failed to take advantage of the weakness in the euro area. Though the Q2 Advance GDP report was stronger than expected at 2.8% vs. 2.0% anticipated, it’s worth highlighting that this is one of the most lagging of all economic indicators, so it tends to have a relatively limited impact on markets. At the same time, the more timely Initial Jobless Claims (235K, roughly as expected) and Durable Goods Orders (-6.6% m/m, far worse than expected and the weakest since May 2020) reports painted a more subdued picture of current US economic activity.

On balance, this run of US economic data has traders fully discounting a 25bps interest rate cut from the Fed in September and an outside chance (~15%) of 50bps in reductions by then. In other words, both the ECB and Fed are seen as all-but-certain to start cutting interest rates in September, so the key question for EUR/USD will be which central bank is more aggressive in easing monetary policy through Q4 and into early 2025.

Euro Technical Analysis – EUR/USD 4-Hour Chart

Source: TradingView, StoneX

Technically speaking, EUR/USD has transitioned from a near-term uptrend through the first 3 weeks of July into a near-term downtrend over the last week. As we go to press, the pair is trying to stage a bounce off the 38.2% Fibonacci retracement of the late-June to mid-July rally.

With US Core PCE still on the calendar tomorrow, we may well get a definitive move off that support zone ahead of the weekend. A bounce and break out of the bearish channel could set up a near-term rally toward 1.0900 next, whereas a clear break of the 1.0840 support zone quickly exposes the 50% Fibonacci retracement near 1.08 or the 61.8% Fibo at 1.0775 next.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX