EUR/USD reverse course after US PMIs and loses 200-day SMA

• After initially rising to 1.0880, the EUR/USD declines to 1.0785, below the 200-day SMA at 1.0815.
• Manufacturing PMIs from the US showed better-than-expected results.
• The US DXY index and Treasury yields significantly recovered following the release.

Following the release of a mixed Nonfarm Payrolls report, which saw employment rising higher than expected, wages decelerating and the unemployment rate rising above expectations in August, the US Dollar (USD) reversed its course, recovering on the back of stronger Institute for Supply Management (ISM) PMIs.

The manufacturing index rose above expectations but showed that the sector remains in contraction (below 50), coming in at 47.6 vs. the 47 expected. The Employment index also beat expectations at 48.5 vs. the 44.2 expected.

The USD’s DXY index dropped to 103.27 after the release of lacklustre Nonfarm Payrolls – but then recovered after the better-than-expected PMIs, rising towards 104.22.

US yields also saw volatility, falling to lows not seen since August 10, but then cleared some losses. The decline of the yields hints at investors betting on lower odds of a Federal Reserve (Fed) interest rate hike this year. The CME FedWatch tool depicts that the likelihood of a 25 basis point (bps) increase at nearly 35% in November and December after rising to nearly 50% this week.

Ongoing data will continue helping investors model their expectations towards the upcoming September 20 meeting and as long as investors continue betting for no hikes for the remainder of 2023, the USD’s upside is limited.

 EUR/USD Levels to watch 

Based on the daily chart, the EUR/USD exhibits a bearish outlook for the short term. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain in negative territory, with the RSI below its midline and showing a southward slope.

The MACD is also displaying red bars, indicating a strengthening bearish momentum.

Additionally, the pair is below the 20,100 and 200-day Simple Moving Averages (SMAs), pointing towards the prevailing strength of the bears in the larger context and the buyers facing a challenging situation.

Support levels:1.0780, 1.0760, 1.0730.

Resistance levels: 1.0815 (200-day SMA), 1.0830,  1.0890 (20-day SMA)

EUR/USD Daily Chart