EUR/USD supported by better-than-expected Eurozone PMIs and weak US dollar

EUR/USD Supported by better than expected euro Weak PMIs for the region US Dollar

• Eurozone composite purchasing managers index beats expectations, but caution is warranted
• The problems of the German manufacturing industry continue
• Can Powell support a weakening US dollar?

According to the latest HCOB purchasing managers’ indices, economic activity in the euro area increased in August. However, a closer look at the figures “shows that the underlying fundamentals may be shakier than they appear at first glance,” said HCOB chief economist Dr. Cyrus de la Rubia.

“It’s a tale of two worlds. The manufacturing sector remains mired in recession, while the services sector still appears to be growing at a decent pace. But as the temporary Olympic boost in France fades and there are signs of waning confidence across the eurozone services sector, it is probably only a matter of time before the difficulties of the manufacturing sector also weigh on the services sector.”

The euro hit a new 13-month high against the US dollar on Monday and is within touching distance of another peak today. The US dollar remains weak as the Federal Reserve prepares a series of interest rate cuts that are expected to begin in September. Fed Chairman Jerome Powell’s appearance on Friday at the Jackson Hole Symposium could give the market a better understanding of the central bank’s current thinking and the expected pace of future rate cuts.

Today’s EUR/USD price action is likely to remain within Monday’s range (1.1099-1.1174), with yesterday’s high more likely to be tested.

EUR/USD daily chart

Chart with TradingView

Data from retail traders shows that 22.77% of traders are net-long, with the ratio of short to long traders at 3.39 to 1. The number of net-long traders is 5.47% lower than yesterday and 23.95% lower from last week, while the number of net-short traders is 1.73% higher than yesterday and 7.93% higher from last week.

We usually take a contrarian stance to crowd sentiment, and the fact that traders are net-short suggests that EUR/USD prices could continue to rise. Traders are net-short even more than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger EUR/USD bullish contrarian trading bias.