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  • Markets are pricing increased odds of a 20 bp ECB cut in September.
  • Latest PMI data from Germany and eurozone confirm contraction in manufacturing activity.
  • US Dollar Index remains on track to post its highest daily close in more than 2 years.

The EUR/USD pair lost nearly 150 pips last week and started the new week below the critical 1.10 handle on Monday. With the Greenback preserving its strength and investors staying away from euro amid expectations of an aggressive dovish move by the European Central Bank, the pair extended its slide and touched its lowest level in more than two years at 1.0957.  

The subdued trading action amid the Labor Day holiday in the US in the second half of the day allowed the pair to go into a consolidation phase. As of writing, the pair was down 0.17% on the day at 1.0970.

Uninspiring data and ECB rate cut expectations weigh on EUR

Earlier today, the final reading of the IHS Markit’s Eurozone Manufacturing PMI came in at 47 to match the previous estimate and the market expectation. However, the same PMI data for Germany ticked down to 43.5. Commenting on the data, “Trade wars and tariffs remain the biggest concerns among producers, and the escalation of global trade war tensions in August encouraged further risk aversion,” said Chris Williamson, Chief Business Economist at the IHS Markit.

Meanwhile, following last weeks dovish commentary from ECB officials, Reuters today reported that eurozone money markets were now pricing a 60% probability of a 20 basis-point rate cut in September while seeing at least a 10 basis-point rate cut as imminent.

On the other hand, the Greenback remains as a safer alternative and continues to find demand. The US Dollar Index, which rose above the 99 handle for the first time since mid-2017 on Friday, extended its rally on Monday and was last seen adding 0.25% on the day at 99.06.

Tomorrow,  Christine Lagarde, who is expected to become the next president of the ECB,  will speak in front of the Committee on Economic and Monetary Affairs (ECON). Later in the day, the IHS Markit and the ISM both will be releasing their August PMI reports for the US.  

Technical levels to consider