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FX markets have been fairly quiet without the participation of US investors at the start of the new week and first full week of September. Volatility should pick up from here as more and more investors and traders come back from their summer holidays. There aren’t too many top-tier macro pointers to look forward to this week, so the dollar’s bullish trend is likely to remain intact. This should keep the EUR/USD under pressure.

European stocks relinquish earlier gains

This morning saw the EUR/USD find some mild support as stocks started the week on the front foot. Sentiment improved a tad with China continuing to offer support to its markets and as investors digested Friday’s so-called goldilocks non-farm payroll report. By late afternoon, however, much of the earlier gains had been relinquished with major European indices closing near their session lows, albeit amid low trading volumes. This ensured the EUR/USD would not rise too significantly.

EUR/USD analysis: Eurozone woes continue

Today’s release of European data would not appease the EUR/USD bulls. The closely-followed Sentix Investor Confidence, a leading indicator of economic health based on around 2,800 surveyed investors and analysts, fell further into the negative at -21.5 versus -19.6 expected, from -18.9 previously. On top of this, Germany’s trade surplus narrowed by more than expected to €15.9 billion down from €18.7 billion. What’s more, Spanish unemployment unexpectedly rose by 24.8K when a drop of 21.3K was expected. Today’s data comes after German manufacturing PMIs on Friday painted a grim outlook for the Eurozone’s largest economy. Meanwhile, ECB President Lagarde said: "it will be critical for central banks to keep inflation expectations firmly anchored while these relative price changes play out."

Mixed US jobs report unable to dent dollar’s bullish trend

The EUR/USD came under renewed pressure on Friday on the back of poor Eurozone data, while the dollar rose even though the mixed US jobs report boosted speculation that the Fed would be keeping interest rates on hold at the coming meetings. Indeed, money markets imply that rate hikes have finally reached a peak, with the 30-day Fed Fund futures implying a 93% chance of the Fed holding rates steady in September. Although 187K jobs were added into the economy, which was above the 170K expected, the unemployment rate rose to its highest level since February 2022 at 3.8% and average hourly earnings rose 0.2% month-over-month instead of 0.3% eyed.

EUR/USD analysis: Technical outlook

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Source: TradingView.com

The EUR/USD remained below the 200-day average in light trading conditions on Monday. Given the lower lows and lower highs, and the overall bearish price structure on this pair, a move below the recent low at 1.0766 still looks favourable. If there’s acceptance below this level, then the May low at 1.0635 would become in focus next. Resistance is seen in the range between 1.0845 to 1.0870ish. This area had offered decent support in July, but after rates topped out at 1.1275 later in the month, the EUR/USD went on to break below the aforementioned support range by the latter parts of August. A mild rebound last week failed, as the sellers returned to drive the pair below the 200-day again despite a mixed US jobs report and several other weaker-than-expected US data earlier last week.

As things stand, therefore, the path of least resistance remains to the downside on the EUR/USD. The bulls will need to wait for a confirmed reversal signal, as the selling pressure could easily gather momentum with more and more support levels breaking down.

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