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While it is clear that President Trump wants a weaker dollar to increase exports and help buoy US economic growth, he is facing opposition from the ECB. The ECB’s Phillip Lane is concerned about the rising value of the Euro to the US dollar and appears to have drawn a line in the sand. The Euro came under pressure as authorities have become uncomfortable with the Euro’s appreciation. The Euro remains near the upper end of its value during 2020. Since Lane made his comments the currency has been correcting but will need a further impetus to move lower. The forex market is now in flux and could continue to experience volatility as rhetoric continues to be prevalent. The technicals point to a correction in the dollar as it begins to gain traction and EUR/USD momentum turns negative.
EU Data Comes in Stronger than Expected
Stronger than expected US data has helped the Euro move lower, but solid data in the Eurozone is keeping the Euro elevated. According to IHS Market, the final EU services PMI composite report came in better than expected and the preliminary readings. According to IHS Markit, the EU service PMI slowed to 50.5 compared to the 50.1 preliminary number and the 54.7 reading from July. The total composite PMI which incorporates the manufacturing numbers as well as the services numbers came in at 51.9 compared to the preliminary number of 51.6 after hitting a level of 54.9 in July.
US Jobs Data is Mixed
US jobs data has been mixed in August. While jobless claims appear to be improving, helping to buoy the dollar, private payrolls were softer than expected. According to the Labor Department, initial jobless claims came in at 881,000 last week, better than estimates. Expectations had been for a decline to 950,000. The Labor Department is now using a new methodology, which accounts for the decline. The Labor Department said in a statement that the initial claims for the week ended August 29 did represent a decline from the previous week’s 1.011 million. Using the old methodology, the total would have been 1.02 million. The BLS also said that continuing claims fell sharply, dropping by 1.24 million to 13.254 million.
ADP Private Payrolls Rise Less than Expected
Despite the solid claims data, private payroll data was not upbeat. ADP reported that Private payroll growth accelerated less than anticipated in August. Companies added 428,000 jobs during the month, well below the 1.17 million estimates and more than the 212,000 that ADP measured for July.
Technical Analysis
The Euro is attempting to form a topping pattern, as the dollar begins to gain traction. Resistance is seen near the recent highs close to the line in the sand level at 1.20. Support is seen near the 50-day moving average at 1.1631.
Short-term momentum is negative as the fast stochastic generated a crossover sell signal. The move lower in the fast stochastic points to a lower exchange rate for the EUR/USD. Medium-term momentum remains negative as the MACD (moving average convergence divergence) histogram is printing in the red with a downward sloping trajectory which points to a lower exchange rate. The MACD generated a crossover sell signal mid-August despite the rising exchange rate of the EUR/USD. The relative strength index (RSI) also moved lower, breaking down to fresh 2-month lows which reflects accelerating negative momentum.
