• Ahead of the release of the minutes from the Federal Reserve's latest meeting, the EUR/USD currency pair is holding onto its recent gains, hovering around the resistance level of 1.1130, the highest level for the currency pair in 2024.
• These gains have come amid a decline in the US dollar against other major currencies.
• However, according to stock trading platforms, European stock indices were unable to maintain their early gains and closed lower on Tuesday, halting their recent rally but preserving the broad-based recovery from a global stock sell-off earlier in the month as markets continued to gauge the risks of economic recession and its impact on future borrowing costs.

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According to stock trading platforms, the Stoxx 50 index for the Eurozone fell by 0.3% to close at 4856, and the broader Stoxx 600 index for European stocks fell by 0.5% to 512, pressured by the heavy weight of energy and metals producers in the broader index. Also, heavyweight banking stocks in the Eurozone recorded losses, with shares of UniCredit, Nordea, and Santander falling between 2.3% and 1%. As well, energy producers declined sharply, with shares of Total Energies and ENI falling 1.5% and 1% respectively.

In economic data, German producer prices fell to a 13-month low on a year-on-year basis amid diminishing base effects.
 

What’s next for the euro versus the dollar?

The EUR/USD exchange rate may move further upwards if Eurozone Purchasing Managers' Index data to be released this week confirms an economic improvement. According to currency analysts at HSBC, Clyde Wardle, Senior Emerging Markets Currency Analyst at HSBC, said: “If last week was the big data week for the US and UK, this week is expected to be the big data week for the Eurozone. Notably, the Eurozone Purchasing Managers' Indices, due on Thursday, alongside the UK and US, will be worth watching.”

Obviously, these expectations come amid a rise in the EUR/USD exchange rate, bringing the pair back above the resistance level of 1.11. Overall, the rally could extend if August Purchasing Managers' Index data shows an improvement in economic activity in the Eurozone, which is consistent with a slow and steady interest rate cut cycle at the European Central Bank.

HSBC economists expect a rebound in the services component due to the Paris Olympics and summer holidays. The analyst added, “Any sign that Eurozone activity is starting to surprise on the upside, after disappointing widely in recent weeks, could give the EUR/USD pair another boost.”

Other risks associated with the economic calendar include the release of the European Central Bank's second-quarter wage index, which HSBC Economics expects to show a slowdown in wage growth to 4.2% year-on-year (versus 4.7% previously). This would strengthen the case for a rate cut in September, which could negatively impact the euro.

The US dollar side of the equation will be equally important, with a strong focus on Federal Reserve Chairman Jerome Powell's speech on Friday. According to analysts, "Powell is widely expected to signal a September rate cut in his appearance at the Jackson Hole economic policy symposium on Friday. Yields have weakened and the dollar has retreated early in the week as traders bet that the Fed chair will acknowledge a continued shift in the balance of risks facing the US economy, suggesting that the restrictive policy settings are no longer appropriate, and opening the door for an imminent easing decision."

However, the US dollar could rebound if the market is disappointed by what Powell says. Powell is unlikely to put the Fed on a more aggressive easing path without sustained evidence of renewed growth and employment, and investors may find themselves frustrated by the substance of his remarks."
 

EUR/USD Technical analysis and forecast:

For now, any weakness is likely to be superficial, with technical studies from Société Générale suggesting that the EUR/USD rally is likely to extend. Technically, EUR/USD has recently broken out of its symmetrical triangle, suggesting that it has regained its bullish momentum. This is also evident in the daily MACD, which has been holding in positive territory since July. Furthermore, this outlook comes as the US dollar has fallen to a seven-month low amid EUR/USD’s rally above 1.10. Overall, the move is a bit overdone, but signs of a pullback are yet to emerge. The 50-day moving average near 1.0880/1.0850 should act as important support in case a short-term bearish move develops.

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