EURUSD Exchange Rate Back in a Range Ahead of PMIs
By Martin Lam
Market Overview
The EURUSD exchange rate is currently trading within a familiar range after failing to maintain the 1.1900 level. This recent downturn has set the stage for potential movements based on upcoming European economic data, particularly the Purchasing Managers' Index (PMI) reports scheduled for release.
Current Trading Range
Following the inability to hold above 1.1900, the EURUSD is now poised to test lower support levels, with analysts suggesting that weaker economic data could push the exchange rate down towards 1.1580, and potentially even lower to 1.1500.
Upcoming Economic Data
The first set of PMI data will be released from Germany, where a slight improvement is anticipated, with a combined reading projected at 0.1. This is expected to be driven by stronger manufacturing performance, although the services sector is expected to show weakness. Conversely, the broader European data is expected to reflect a 0.4 gain in services, contrasting with weaker manufacturing results.
Analysts believe that any unexpected positive results in these data sets could provide a boost to the euro, while further economic weakness could lead to a decline towards previous support levels.
Economic Context
Recent indicators show that eurozone GDP expanded by only 0.3% in the fourth quarter, indicating a persistent low-growth environment. This economic backdrop is compounded by reduced expectations for interest rate cuts from the European Central Bank, alongside geopolitical tensions, particularly between the US and Iran, which are contributing to market volatility.
US Economic Factors
On the US side, President Trump's ultimatum to Iran regarding its nuclear program has heightened tensions, which could impact market sentiment. The latest minutes from the Federal Open Market Committee (FOMC) suggest that participants are wary of further rate cuts, fearing they could lead to entrenched inflation or be misinterpreted as a lack of commitment to the 2% inflation target.
Conclusion
For the euro to recover from its recent decline, a notable improvement in economic data is essential. The upcoming PMI releases will be critical in determining the short-term direction of the EURUSD exchange rate.