EUR/USD extends gains on worries over US economy

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EUR/USD extends gains on worries over US economy

The euro has posted strong gains on Monday. In the North American session, EUR/USD is trading at 1.0982, up 0.68% on the day at the time of writing. Earlier, the euro rose as high as 1.1008 (0.78%), its highest level since January 2. On Friday, the euro surged 1.09% after a disappointing US nonfarm payrolls raised concerns about the US economy.

Fed expected to stay on sidelines

The Federal Reserve has managed to push inflation down to 3%, above the 2% target but low enough to begin lowering interest rates. The US economy was cooling slowly and everything seemed to line up for a quarter-point cut in September.

The dream scenario of a soft landing, however, has been rudely punctured by softer-than-expected US data, most notably last week's employment report for July. Nonfarm payrolls for July slowed to 114 thousand, much lower than the revised 179 thousand in June and the market estimate of 175 thousand. As well the unemployment rate rose from 4.1% to 4.3% (est. 4.1%) and wage growth eased from 0.3% m/m to 0.2% (est. 0.3%).

The fears of a sudden downturn in the US economy has resulted in a steep sell-off in US and global stock markets on Monday. The markets have priced in a half-point cut in September at 97%, according to FedWatch and there is a strong possibility that the Federal Reserve could deliver an unscheduled emergency rate cut.

There was some good news today as the ISM Services PMI pushed into expansion territory in July, rising from 48.8 to 51.4, above the market estimate of 51. Will this positive release be enough to calm the jittery markets?

In Europe, the services sector decelerated in July. The Eurozone Services PMI eased to 51.9, down from 52.8 a month earlier and in line with expectations. In Germany, the eurozone's largest market, Services PMI fell to 52.5, down from 53.1 in June and below the market estimate of 52.0.

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EUR/USD Technical

• Earlier, EUR/USD pushed above resistance at 1.0965 and put pressure on resistance at 1.1018


• 1.0893 and 1.0820 are the next support levels

 

Source: EUR/USD extends gains on worries over US economy