- Data on Thursday showed that eurozone business activity remained weak in October.
- Markets fully appreciate the ECB’s 25 basis point rate cut in December.
- US PMI numbers will show the state of business activity.
The EUR/USD outlook turns south despite a brief rebound as data reveals weak business activity in the Eurozone. However, the pair rallied as the dollar eased amid uncertainty surrounding the upcoming US presidential election.
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Data on Thursday showed that eurozone business activity remained weak in October. The composite PMI came in at 49.7 compared to forecasts of 49.8. Figures below 50 indicate contraction and weak economic demand. Consequently, market participants increased their bets for another rate cut by the European Central Bank in December. Markets are fully pricing in a 25 basis point rate cut in December.
However, the ECB’s Christine Lagarde on Wednesday stressed caution when deciding on policy. However, other policy makers have expressed more dovish remarks. Still, the euro rallied on Thursday, while the dollar weakened from recent highs ahead of the US presidential election.
For weeks, the dollar strengthened as traders bet on a Trump victory and higher inflation. However, a recent Reuters poll showed Kamala Harris in the lead, indicating a close race. The uncertainty has caused some investors to pause and lock in profits ahead of the election.
Meanwhile, market participants are waiting for more hints about the future of Fed policy. US jobless claims will show whether demand remains strong in the labor market, which could dampen bets for a November rate cut. Meanwhile, PMI numbers will show the state of business activity.
The outlook for Fed policy has shifted to more gradual. Furthermore, policymakers have taken a hawkish tone. Accordingly, markets have a 29% chance that the central bank will cut rates just one more time this year.
EUR/USD key events today
- Claims for the unemployed
- Flash Manufacturing PMI
- Flash Services PMI
EUR/USD Technical Outlook: Bears are leading below the 30-SMA
From the technical side, EUR/USD the price recovered to retest the key level of 1.0801. However, the downtrend remains intact as the price recently hit a lower low. Furthermore, it is trading below the 30-SMA, with the RSI below 50, in bearish territory.
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Therefore, even if the uptrend continues, it could stop at the 30-SMA resistance. Here, the price is likely to bounce lower to continue the downtrend above the 1.0750 level. However, if the price breaks above the SMA, the trend could reverse to the upside.
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