For the second consecutive day, the euro/dollar pair has demonstrated increased volatility but still stands at the border of the 8 and 9 figures. Buyers of EUR/USD are desperately trying to develop corrective growth, but they return to their previous positions each time. This suggests that long positions are risky, even despite the bears' inability to consolidate in the area of the 8th figure (let alone breaking the support level of 1.0850). Against an almost empty economic calendar, traders are forced to react impulsively to secondary macroeconomic reports and external fundamental factors, most of which do not contribute to the development of an upward movement. Judging by everything, such a back-and-forth will persist until August 24th, when the economic symposium in Jackson Hole will open. It will likely last until Friday when Federal Reserve Chairman Jerome Powell will deliver a speech as part of this forum.
Yesterday, buyers of the EUR/USD pair reacted to the publication of the monthly report of the Bundesbank, some formulations of which were quite hawkish. Economists at the German Central Bank are again concerned about the high level of inflation in the eurozone, lamenting the slow pace of reducing the main indicators (especially concerning core inflation).
The Bundesbank report, as well as the general weakening of the greenback observed yesterday in the first half of the day, allowed EUR/USD buyers to reappear within the 9th figure. But then the price turned south again – partly "thanks" to Germany, where the producer price index was published. The inflation release turned out to be in the "red zone," reflecting a slowdown in inflation in the country. In monthly terms, the index came out at -1.1%. In annual terms, the figure plummeted to -6.0% - the worst result since November 2009. For the first time in 2.5 years, the indicator was in negative territory.
Such eloquent numbers extinguished the northern impulse. In addition, sellers of EUR/USD were supported by an extensive article in The Wall Street Journal dedicated to economic growth prospects in China. The material turned out to be very pessimistic: the publication's authors concluded that the economic model that brought China to the status of a great power needs to be fixed and has multiple signs of problems. Weak macroeconomic reports published in China in July and August (data on GDP growth, foreign trade indicators, industry, etc.) only eloquently illustrated the resonant WSJ material.
Against the backdrop of strengthening anti-risk sentiments, the safe dollar again enjoyed increased demand, thanks to which sellers of EUR/USD could return the price to the area of the 8th figure.
Today the pair repeated yesterday's trajectory: in the morning, the dollar retreated against the backdrop of increased risk appetite (US stock index futures traded in positive territory, reflecting an interest in risk), while closer to the American session, the greenback again strengthened its positions, allowing EUR/USD bears to return below the 1.0900 mark.
As mentioned above, such volatility will likely persist until the end of the week when Jerome Powell will speak. However, tomorrow's data to be published in key European countries may cause some volatility. PMI indices can trigger price turbulence only if they deviate significantly from forecast estimates. According to preliminary projections, the figures will reflect increasing pessimism in the European business environment.
For example, the manufacturing sector's business activity index in France will likely remain below the key 50-point mark, settling at around 45.2. The indicator has been below the "waterline" for six consecutive months, with August set to be the seventh. Similarly, the services sector is expected to slow down to 47.1 points.
German figures may also disappoint traders of the pair. The German manufacturing PMI could plunge to 38.4 points, representing a three-year low and the weakest result since June 2020. The indicator has been consistently declining for the past five months. The services index is also expected to show negative dynamics, dropping to 51 points.
European PMI indices are forecasted to follow the trajectory of French and German indicators: the manufacturing sector is expected to slow to 42.4 points, and the services sector to 50.2 points, almost to the brink of stagnation. Published figures could put significant pressure on the single currency, as almost all release components (especially in the manufacturing sector) are expected to remain below the "red line" of the 50-point mark.
To reiterate, the PMI indices will only trigger volatility in the EUR/USD pair in the event of a "red" or "green" hue in the published figures. In any case, price fluctuations will be limited, within the 1.0850–1.0930 range, in which the pair has been trading for the past two weeks. Therefore, when approaching the upper or lower boundary of the corridor, it makes sense to lock in profits and not hope for a breakthrough of the echelon - at least until Friday's speech by the Fed Chairman.