The euro gained ground against the greenback yesterday, despite the release of weak Eurozone retail sales data for August. The US non-farm employment change data for September also missed estimates by a wide margin. However, the weak US economic data encouraged the markets to bet on the postponement of further rate hikes by the Fed. This enabled the euro to strengthen against the US dollar. Overall, the EUR/USD pair rallied from a low of 1.0487 to a high of 1.0522 in the past 24 hours.
According to the data published by Hamburg Commercial Bank (HCOB) and S&P Global, the German final services PMI (purchasing managers’ index) rebounded to the expansion zone with a reading of 50.30 in September from 47.30 in August and greater than flash estimates of 49.80. Economists did not anticipate any change in the flash estimates. A reading below 50 indicates contraction, and vice versa.
The increase was led partly by the clearance of backlogs of work. For the third successive month, inflows of fresh orders for the service sector declined at the quickest pace since September 2022. With a decline in fresh work, the quantum of outstanding orders across the service sector dropped for the fourth successive month.
Services firms showed hesitation to hire in September. The changes made for the fall in activity and increased costs resulted in a slight decline in employment.
In a separate news release, Hamburg Commercial Bank and S&P Global stated that the Eurozone final services PMI inched up to a two-month high of 48.70 in September from 47.90 in August. The flash estimates had pegged the Eurozone services PMI at 48.40. Economists did not anticipate any change in the flash estimates. The reported reading reflects a second consecutive month of contraction in service sector activity.
The HCOB Eurozone composite PMI output index improved slightly to 47.20 in September from 46.70 in August. This is the fourth consecutive monthly reading below 50.
To ensure continuous business activity, the Eurozone companies started clearing their backlogs of work. Outstanding business volumes declined at a robust and expedited rate in September, mirroring the quicker processing of orders across both tracked sectors. The extent of the decrease in work-in-hand was the steepest since June 2020.
Eurozone retail sales fell by 1.20% m-o-m in August, following a 0.10% decrease in the previous month and worse than forecasts of a 0.50% decline.
The retail sales decline was led by a 3% drop in automotive fuel volume. Likewise, food, drinks, and tobacco recorded a 1.20% decrease. Non-food products posted a drop of 0.90%.
On a y-o-y basis, Eurozone retail sales volume fell by 2.10% in August 2023.
The decline was led by a 7.70% drop in automotive fuels and a 3.20% decrease in retail sales volumes for food, drinks, and tobacco. Also, non-food products posted a drop of 0.20%.
The ADP non-farm payrolls increased by 89,000 in September following an addition of 180,000 jobs in the previous month but missed forecasts of 154,000 job additions.
The goods-producing sector added 8,000 jobs. Specifically, the natural resources/mining sector added 4,000 jobs. Likewise, the construction sector added 16,000 jobs. However, manufacturing lost 12,000 jobs.
The service-providing sector added 81,000 jobs. In particular, the leisure/hospitality sector added 92,000 jobs. Similarly, financial activities and education/health services added 17,000 and 10,000 jobs, respectively. However, trade, transportation, and utilities lost 13,000 jobs. Likewise, professional and business services lost 32,000 jobs.
The weak economic data from both the US and Europe is expected to keep the EUR/USD pair range-bound in the short term.
The historical price chart indicates that the EUR/USD pair is ascending after testing the support at 1.0500. The next resistance is anticipated only near 1.0620. Additionally, the currency pair is trading above its 50-day moving average, while the stochastic indicator is rising towards the bullish zone. Therefore, we anticipate the EUR/USD pair to remain in an uptrend in the short term.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
