The euro to US dollar exchange rate recorded 1.0761 two days ago, marking its lowest level since July 3, 2024. It is currently trading close to the 1.0800 level. It has declined by about 4% from the peak of 1.1214 recorded on September 25, 2024, down to the low of 1.0761 on October 23. Additionally, it has fallen by about 2% since the beginning of the year. The negative momentum of the euro against the US dollar seems to prevail in the upcoming period, driven by several fundamental and technical factors.
Fundamental Factors:
- Weak economic data in the eurozone, notably:
- A decline in the main consumer price index on a year-over-year basis, registering 1.7% in September, which is lower than expectations (1.8%) and the previous reading (2.2%), and also below the target rate set by the European Central Bank of 2%.
- It is noteworthy that there is a variation in inflation figures among the four largest economies in Europe: Germany (1.60%), France (1.10%), Italy (0.70%), and Spain (1.50%).
- The manufacturing PMI in the eurozone has been in contraction since July 2022, indicating continued weakness in the manufacturing sector, especially in Germany, France, and Italy, with Spain being an exception as it records growth in the manufacturing sector.
- In contrast, we see strong economic data in the United States, such as labor market data, including the non-farm payrolls report and retail sales for September. Additionally, unemployment claims recorded yesterday were 227,000, lower than expectations (243,000) and the previous reading (242,000). Furthermore, the manufacturing and services PMIs recorded yesterday were 47.8 and 55.3 points, respectively, surpassing expectations and previous readings. The new home sales index also recorded 738,000, which is higher than expectations and the previous reading.
It is worth noting that there is an important factor giving upward momentum to the US dollar against most foreign currencies, which is the current geopolitical tensions in the Middle East, as it is considered a safe haven.
The ongoing gap between German and US government bond yields is exerting pressure on the euro against the dollar. For example, the yield on German ten-year government bonds is approximately 2.30%. Meanwhile, the yield on US two-year Treasury bonds is approximately 4.22%, indicating that the gap between them is around 1.92%, which encourages carry trade.
Technical Factors:
- A bearish crossover has occurred between the 50-day moving average (in blue), which stands at 1.1035, and the 20-day moving average (in gray), which stands at 1.0921 on October 15, 2024.
- The positive directional movement index (DMI+) records around 10 points, compared to the negative directional movement index (DMI-) which records around 31 points. The gap between these two indicators is relatively large, indicating strong selling pressure on the euro against the dollar. More importantly, the average directional index (ADX) records about 40 points, indicating that the momentum of this downward trend is strong.
- The relative strength index (RSI) currently records about 34 points, suggesting the continuation of the negative momentum for the euro to US dollar pair.
Support and resistance levels:
- If the pivot point of 1.0808 for the EUR/USD pair is broken, there is a possibility of targeting support levels at 1.0787, 1.0747, and 1.0726.
- If the pivot point is surpassed, it is likely to target resistance levels at 1.0848, 1.0869, and 1.0909
Please note that this analysis is provided for informational purposes only and should not be considered as investment advice. All trading involves risk.
