EUR/USD with a chance for a larger correction

EUR/USD marks new local lows and falls towards 1,0810. This morning, yesterday's lows are being tested. The prices are falling even before the publication of the final PMI data for services for Europe. The closest technical support seems to be the level of 1,0750 - this is where the maximums from November 6 fall.

The PMI readings are a disappointing result

The dollar has been gaining for several days. In addition, there is an even weaker euro, which suffered after the last statement of the president of the central bank of France, who said directly about the end of the cycle of interest rate increases in the euro zone. The common currency may be further depreciated if the final PMI readings disappoint, lower than expected. Then the market will begin to value the reduction in the cost of money even more strongly EBC. At this point, the market assumes that the European institution will be the first to move down (before the Fed). The probability of such an event in March 2024 is currently over 70 percent. The market also estimates it at close to 90 percent. chances for another reduction in April. The declines of the main currency pair are therefore understandable.

Today the USD may be more volatile due to the release of the ISM services report. This is a more important report than the one regarding industry. Forecasts indicate that the main indicator will increase from 51,8 points. up to 52 points. Investors will also evaluate sub-indices related to employment, prices paid and business activity. Better data can make that happen EUR / USD will break the round level of 1,08.

A chance for greater declines

It will have an impact on the exchange rate of the main currency pair publication of the number of vacancies according to JOLTS showing how the demand for labor is shaping in the USA. The data become particularly important now, when in a few days we will receive the official report from the American labor market (NFP). The market consensus indicates a decline to PLN 9,35 million from PLN 9,55 million. The next clue will be given tomorrow by ADP, although as we know, it can give different signals and is poorly correlated with government data.

The current lows on EUR/USD are just above the 38,2% Fibo internal retracement level. This is a popular place to end corrections. However, if the data are good, the technical level will not matter here further declines are most likely, especially when the strength of the demand side is not visible. A stronger barrier, which the exchange rate may have more problems with, is the ceiling of 1,0750 - horizontal support marked by the peak formed on November 6 this year. Already on Friday, the quotations left the bottom of the accelerated upward channel that was formed in the first days of November. This factor increases the chances of stronger discounts.

Source: Łukasz Zembik, OANDA TMS Brokers