26.06.202309:23 Forex-elemzések és áttekintések: EUR tries to reach new highs despite strong USD

The US currency kicked off a new week on a positive note. It retains upward movement, aiming at new highs. The euro does not give up trying to take revenge and recoup its recent losses. Earlier, the euro managed to grow against the US dollar. Yet, now, both currencies are quite strong.

On Monday morning, the US currency remained stable while traders assessed the prospects for the global economy and a series of key rate hikes by top central banks. A bit later, the greenback fell slightly versus its main rivals. However, it did not lose ground against the euro amid market uncertainty over near-term economic prospects.

Currently, the US dollar is trading near a weekly high but is ready for a jump at any moment. The euro is also trying to take the upper hand. Such a situation has occurred against the backdrop of investors' worries about protracted tightening cycles by leading central banks. In addition, the speculators are also concerned about a deep recession in some of the world's largest economies.

Earlier this month, the majority of central banks, including the Bank of England and the ECB, raised their key rates. This has increased uncertainty about the prospects for the global economy and major world currencies, primarily the US dollar.

According to Commonwealth Bank of Australia currency strategists, aggressive tightening in the largest economies contributes to the deterioration of the global economy but provides significant support to USD. Hence, the greenback remains a safe-haven asset, which investors usually chose in times of turbulence.

Weak eurozone PMI data also triggered a steady rise in the US dollar. On June 23, the euro fell to a weekly low after reports, indicating a deterioration in business activity in Europe. In June, the Manufacturing PMI Index dropped. The service sector, which powers eurozone growth, significantly decreased as well.

Analysts note that the June readings of the PMI Indices for the eurozone adversely affected the euro. The Services PMI for France declined sharply. The HCBO France Composite PMI to 48 from 52.5. This is much worse than the forecast reading of 52.2.

The macro stats from Germany were less disappointing. The Manufacturing PMI sank to 41 from 43.2. Economists had expected the reading to total 43.6. The Services PMI tumbled to 54.1 from 57.2. The consensus estimate was 56.3.

A decline in the strongest economies of the eurozone - France and Germany – worsened the indicators of the entire euro area. As a result, the euro zone's flash Composite Purchasing Managers' Index dropped to 50.3 in June, the lowest level since January 2023. In addition, the euro area Manufacturing PMI dipped to 43.6. Analysts are concerned that it may lead to a steeper economic downturn. It also fuels market fears about the near-term prospects of the European economy.

There are also no positive reports from the US. In June, business activity fell to a three-month low. The contraction in the manufacturing sector deepened despite a slight acceleration in economic growth in the second quarter of 2023. At the start of this month, the service sector grew more slowly than anticipated. At the same time, the S&P Global Composite PMI index sank to 53 from 54.3 in May. The forecast reading was 54.4. The S&P Global Manufacturing PMI Index tumbled to 46.3 and the Services PMI fell to 54.1.

Against this backdrop, the EUR/USD pair lost almost 1.5%, although last Friday it reached the long-awaited level of 1.1000. However, the pair failed to consolidate there. Later, the euro plummeted to 1.0920 and lower after the release of PMI data. On June 26, the EUR/USD pair was trading at 1.0906, trying to win back its early losses.

If the pair starts a steady upward movement in the coming days, it could win luster with investors. It is likely to hit new highs above 1.1000. However, weak macro statistics from the EU and risk aversion increase the likelihood of a downward movement of the EUR/USD pair. If the situation worsens, the pair could decline to 1.0700 and then to the previous swing lows near 1.0550.

Relatively stable US PMI Indices managed to boost the greenback The American economy is still expanding with GDP growing by 1.7% in June. According to analysts, in the second quarter of 2023, the US economy expanded by 2%.

USD maintained its bullish bias after the release of PMI data, exerting pressure on the euro. Analysts are concerned about the likelihood of further growth in the service sector despite a contraction in the manufacturing sector and the consequences of previous rate increases. Any rate hike may take the shine off the service sector.

The current situation is mainly favorable for the greenback, not the euro. The greenback maintains a strong bullish sentiment. During this month, large funds have been increasing their net positions, facilitating the growth of USD. At the same time, hedgers trading the US dollar for the long term prefer going short.

If bearish sentiment prevails, the greenback could resume a downward movement. Nevertheless, the net position on USD among large traders over the past five months has reached the highest value. This factor also pushes USD higher.

This week, the US will unveil important reports, which will determine the trajectory of the US dollar. On June 29, the US Department of Commerce will publish the final estimate of the country's GDP for the first quarter of this year. According to preliminary forecasts, the indicator could be revised upwardly to 1.4% in annual terms. The previous estimate suggested an increase of 1.3%. In the fourth quarter of 2022, US GDP grew by 2.6% in annual terms.