EUR/USD Bounces on Weaker US Data and Eurozone Resilience

The EUR/USD pair has recovered some of its losses after falling to 1.1570 yesterday, rising towards 1.1610-1.1615 today.

Buyers have managed to push the pair back above 1.1600, but overall risks are still tilted to the downside, as indicated by the series of lower highs after the August peak around 1.1710.

The nearest resistance is located around 1.1620-1.1630, and if this level is broken, bulls will test resistance at 1.1650.

However, a breakout above 1.1650 would be necessary to significantly improve the medium-term outlook for the pair.

The eurozone's resilience has provided moderate support for the euro today, with the final Eurozone Composite PMI for August coming in at 52.0 and the Services PMI standing at 51.6.

German data also came in somewhat better than preliminary estimates, with the Composite PMI revised to 51.8 from 51.0 previously, while the Manufacturing PMI stood at 54.3.

The inflation backdrop remains firm, with Eurozone HICP accelerating to 3.3% y/y in August from 2.9%, and harmonized inflation in Germany rising to 2.9%.

This supports expectations for a 25 bp ECB rate hike next week, although the slowdown in Eurozone core inflation to 2.4% limits the arguments in favor of a prolonged tightening cycle.

U.S. data today have not been as favorable for the dollar, with private-sector employment growth coming in at only 38,000 in August, compared to expectations of around 47,000-48,000 and a revised 46,000 in July.

This has reduced the probability of a Fed rate hike in September to around 59% from nearly 70% previously, and additional pressure on the dollar came from comments by New York Fed President John Williams, who said that there is no urgent need to raise rates at this point.