EUR/USD Prices Forecast: Euro Drops on China, Eurozone Economic Woes

Highlights

• Euro hits three-month low against USD.
• China’s Caixin PMI signals economic downturn.
• Eurozone PMI indicates potential recession.

Overview

The Euro is navigating troubled waters as it hits a three-month low against the U.S. Dollar, fueled by concerns about global growth and unsettling economic data from both China and the Eurozone. The currency pair is under intense pressure, making it a key focal point for traders and investors alike.

Data Drags Down the Euro

China’s service sector, as indicated by its Caixin PMI, is languishing at levels reminiscent of its lockdown era, adding to a growing list of economic woes for the world’s second-largest economy. This bearish signal reverberated across markets, pushing the EUR/USD to 1.0747, a rate not seen since June 12. Simultaneously, the Eurozone’s economic health took a hit as its dominant services industry contracted faster than anticipated.

Eurozone Woes Intensify

According to the final Composite Purchasing Managers’ Index (PMI), the Eurozone’s economic pulse dropped to 46.7 in August, from 48.6 in July, marking its lowest level since November 2020. This decline signals potential recessionary conditions, as it is the third consecutive month the index has been below the 50-mark that separates growth from contraction. Adding to the bleak outlook, Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, suggested that the Eurozone may face even tougher challenges in the second half of the year.

Demand and Employment: Signs of Strain

Consumer demand in the Eurozone also appears to be on shaky ground. The new business index plunged further below breakeven to 46.7 from 48.2, reaching its lowest point since early 2021. Moreover, the composite employment index edged down to 50.2 from 51.4, indicating firms are reluctant to expand their workforce, hinting at possible job cuts in the near future.

Short-Term Forecast

Given the current backdrop of weak economic indicators and a strengthening U.S. Dollar, the short-term outlook for the Euro appears bearish. Ongoing uncertainties in global growth, particularly emanating from China and the Eurozone itself, have set the stage for further downside risks for the currency.

For traders and investors, all eyes will be on future economic data and geopolitical developments, as these will be pivotal in shaping the currency’s trajectory in the coming weeks.

Technical Analysis

The EUR/USD currently trades at 1.0746, a marginal decrease from the previous 4-hour price of 1.0748. It’s notably below both the 200-4H moving average (1.0938) and the 50-4H moving average (1.0827), emphasizing a strong bearish trend. The 14-4H RSI stands at 30.79, indicating an oversold market, hinting at potential exhaustion in the selling pressure.

The currency pair is currently trading below the main support area between 1.0772 and 1.0766. With no minor support or resistance levels and a main resistance zone between 1.0930 and 1.0946, the current sentiment leans bearish, but an upward correction is possible given the oversold conditions.