The ISM Non-Manufacturing PMI report, scheduled for release on Tuesday, is a crucial indicator of service sector activity in the US economy. With the service sector contributing over 70% to the overall economic output, any significant shift in this sector could have a substantial impact on investor sentiment. Economists are predicting a slight decline from 53.4 to 53.0 in February, which could potentially sway investor bets on a Fed rate cut in H1 2024.
Moving onto Wednesday, the focus will shift towards the US labor market with the release of the ADP employment change and JOLTs Job Openings reports. Weaker labor market conditions could lead to a reduction in wages and disposable income, ultimately affecting consumer spending patterns. Economists are anticipating a decline from 9.026 million to 8.895 million in JOLTs Job Openings for January, while the ADP is expected to report an increase of 150k nonfarm employment in February.
As we approach Thursday, all eyes will be on US labor market data, including unit labor costs, nonfarm productivity, and weekly jobless claims. Additionally, Fed Chair Powell’s testimony on Wednesday and Thursday will provide insights into inflation, the state of the economy, and potential timelines for interest rate cuts. A hawkish stance from Powell combined with positive labor market conditions could tip monetary policy divergence in favor of the US dollar.
From a technical standpoint, the EUR/USD pair is currently hovering above the 50-day and 200-day Exponential Moving Averages (EMAs), signaling a bullish bias in the short term. A break above the resistance level at $1.09294 could open the door for a run towards the $1.09 handle. However, a move below the 50-day EMA could bring the 200-day EMA and the support level at $1.07838 into play. The current RSI reading of 52.80 suggests that the EUR/USD pair may have room to move higher before entering overbought territory.
A combination of key economic events such as the ISM Non-Manufacturing PMI, US labor market reports, Fed Chair Powell’s testimony, and technical analysis indicators will shape investor sentiment and influence the direction of the EUR/USD exchange rate. The potential for a more hawkish Fed, stronger US economic data, and technical breakout above key resistance levels could favor a bullish stance on the USD against the EUR. However, external factors such as ECB policy decisions and global economic conditions could play a limiting role in the currency pair’s movement in the near term. It will be crucial for traders to monitor these developments closely and adapt their trading strategies accordingly.
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