EUR/USD - US Dollar Strength Hinges on Services PMI Rebound

After experiencing a downward slide on Thursday, EUR/USD is facing renewed bearish pressure early on Friday as it broke below the 1.0900 level. However, if buyers can successfully defend the support at 1.0870, there is a possibility of a bullish reversal towards the key Fibonacci levels of 50% and 61.8%. Traders may consider placing a stop loss at the 88.6% Fibonacci level to manage risk and protect against potential downside.

During FOMC Chairman Jerome Powell's congressional testimony, his hawkish rhetoric and the prevailing risk-averse market sentiment bolstered the strength of the US Dollar (USD) on Thursday. While the Asian session remained relatively quiet, EUR/USD resumed its downward movement due to mounting concerns of a recession in the Euro area, reaching a one-week low near 1.0850.

Data from Germany and the Eurozone indicated a continued contraction in the manufacturing sector's business activity during early June, with HCOB Manufacturing PMI dropping to 41 and 43.6, respectively. Although HCOB Services PMIs remained above the expansion threshold of 50, they experienced a significant decline compared to the previous month.

Dr. Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, highlighted the PMI reports, suggesting an increased likelihood of another negative Eurozone GDP reading in the current quarter, primarily driven by weak services activity in France.

Reuters calculations suggest that the previously estimated 15% probability of a 4.25% European Central Bank (ECB) terminal rate has effectively diminished to 0% following the PMI readings.

As we look ahead to the weekend, market participants will closely monitor the release of Manufacturing and Services PMI data for the US by S&P Global. In the event of an unexpected rebound in the Services PMI, it could strengthen the USD further. Conversely, a significant decline in the PMI figures might exert downward pressure on the USD's valuation.

In addition to the PMI data, market sentiment and risk perception will play a crucial role. At present, US stock index futures are down by approximately 0.3% to 0.5%. It is important to note that even if the disappointing PMI data weighs on the USD, a bearish reaction in the main indexes of Wall Street might pose challenges for EUR/USD to stage a substantial rebound. Traders should carefully manage their positions, considering the potential bullish opportunities around the 50% and 61.8% Fibonacci levels, while closely monitoring the stop loss level at 88.6% to mitigate risks.