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The euro has started the trading week with considerable losses. EUR/USD is trading at 1.1103 in the European session at the time of writing, down 0.50% on the day. Later today, we’ll get a look at US services and manufacturing PMIs.

Eurozone and German PMIs disappoint

The August PMIs for services and manufacturing were a disappointment, as they decelerated in September and missed the estimates.

The manufacturing sector remains mired in contraction. The eurozone manufacturing PMI fell to 44.8, below the August reading of 45.8 and the market estimate of 45.6 and was the sharpest decline this year. Germany, the largest economy in the bloc, saw manufacturing fall to 40.3, below the August reading of 42.4 and the market estimate of 42.3. This marked the weakest level in a year. The 50 line separates expansion from contraction.

The services sector is looking a bit better, but also eased in September. The eurozone services PMI fell to 50.5, down from 52.9 in August and shy of the market estimate of 52.1. This was the weakest reading since February and indicates marginal expansion. It was a similar story in Germany, as the PMI reading of 50.6 was below the August read of 51.2 and the market estimate of 51.0.

The weak data has sent the euro lower today and will support the case for lower interest rates. The European Central Bank has shifted gears and has embarked on rate-cutting cycle with a cut in June and a second cut earlier this month. Inflation is within striking distance of the ECB’s 2% inflation target and the current goal is to kick-start the weak economy and avert a recession.

EUR/USD Technical

• EUR/USD has pushed below support at 1.1141 and tested support at 1.1094 earlier.
• There is resistance at 1.1212 and 1.1259

EURUSD was sharply down on Monday morning after weaker than expected German and French PMI’s (German manufacturing PMI at 40.3 warns of recession) soured sentiment.

Fresh weakness adds to reversal signals from recent repeated strong upside rejections on approach to pivotal 1.1200 barrier (Aug 26 high / round-figure).

Bears cracked lower pivots at 1.1100 zone (50% retracement of 1.1021/1.1189 upleg / rising 10 DMA) but need to register a clear break lower to signal continuation and expose next targets at 1.1073/46 (Fibo levels 61.8% and 76.4%).

However, larger picture is bullish and broader uptrend to remain in play as long as floor of recent consolidation range / psychological (1.1000) stays intact.

In such scenario the pair would hold in prolonged consolidation, before bulls regain strength for fresh attempt through 1.1200.

Res: 1.1117; 1.1145; 1.1167; 1.1189.
Sup: 1.1087; 1.1073; 1.1046; 1.1000.

Market Picture

The cryptocurrency market paused growth early in the day on Monday after last week’s resounding close, stabilising at $2.23 trillion (+8.8% in 7 days), which is near the previous peak. This means that further gains will be an important second signal for breaking the multi-month trend of lower local highs. Prior to this, we have seen a breaking of the sequence of lower local lows, which was the first signal of a trend change.

Bitcoin slipped to $64.4K on Monday morning, stabilising $1K lower at the time of writing. This tug-of-war near the 200-day simple moving average is in its fifth day. Monday saw the biggest move into territory above this curve. Still, traders should keep in mind last month’s moves when a strong seller attack came after two days of consolidation above this line, also at roughly the same height.

Ethereum has rebounded solidly from its 200-week moving average, which could attract additional long-term buyers. At current levels near $2650, the immediate upside target looks to be the $2800 area, where the 50-week average passes.

The generally positive mood of the crypto market is indicated by the growing capitalisation of the stablecoin market since August, approaching $160bn after three months of fluctuations around $150bn.

News Background

According to SoSoValue, inflows into spot bitcoin-ETFs in the US last week totalled $397m after $403.8m the week before, bringing the total to $17.69bn. Ethereum-ETFs saw net outflows for the sixth week in a row, totalling $26.3m after $12.9m, bringing the total to $607.5m since approval.

CryptoQuant pointed to the reduction of BTC supply at the disposal of speculators to the minimum of 2012. Such dynamics can be interpreted as a lack of ‘fresh demand’, which could make it difficult for bitcoin to break out of its current price range.

MicroStrategy reported purchasing an additional 7,420 BTC for $458.2 million (at a price of ~$61,750 per coin) after selling $1bn worth of bonds. The firm already holds 252,220 BTC on its balance sheet, purchased for $9.9bn at an average rate of ~$39,266 per coin.

The US SEC has given expedited approval for the listing and trading of options on BlackRock’s bitcoin-ETF. Next, OCC and CFTC approval will be required before the official listing. Bloomberg speculated that options for other companies’ products will also be approved soon.

Project founder Justin Sun said commissions on the TRON network have fallen by 50%, which will boost network activity and meme-coin trading.

As reported by CNBC, Jeff Kendrick from Standard Chartered Bank forecasts that, against the backdrop of the Federal Reserve lowering interest rates, the BTC/USD exchange rate will reach an all-time high by the end of 2024:

→ up to $125,000 if Trump wins, who publicly expressed support for the cryptocurrency sector this summer.

→ up to approximately $75,000 if Harris wins. "A Harris victory would likely trigger an initial price decline, but we would expect dips to be bought as the market recognizes that progress on the regulatory front will still be forthcoming, and as other positive drivers take hold," wrote Jeff Kendrick.

A technical analysis of Bitcoin’s chart today shows that, from a long-term perspective, the BTC/USD rate is developing within an upward channel, indicated in blue, with the following key points:

→ everything that has happened to the price since March can be interpreted as a correction (shown by the red channel) within the bullish trend, forming a bull flag pattern;

→ the last three lows around the lower boundary of the red channel form a bullish inverted “head and shoulders” pattern.

Given the above, it is reasonable to conclude that Jeff Kendrick anticipates a breakout of the bull flag and a continuation of Bitcoin’s price movement within the blue channel.

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UK's economic growth showed signs of moderation in September, with PMI Manufacturing slipping from 52.5 to 51.5, while PMI Services declined from 53.7 to 52.8. Consequently, PMI Composite also dropped to 52.9 from 53.8, indicating a slight deceleration in overall activity.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, noted that the data brings "encouraging news," pointing to robust economic growth alongside a cooling in inflationary pressures. He highlighted that the UK economy appears to be heading for a "soft landing" as inflation seems to be easing without the need for further significant rate hikes by BoE.

While output growth slowed in both manufacturing and services, Williamson downplayed concerns, stating that the survey data is still consistent with GDP growth of around 0.3% in Q3, aligning with BoE forecasts. The cooling in services inflation, now at its lowest level since February 2021, is particularly notable. This progress brings the BoE’s 2% inflation target closer within reach and supports the possibility of further rate cuts before the end of 2024.

Full UK PMI release here.

• Gold charts a new record high after two-week rally
• Technical picture signals a temporary slowdown

Gold hit a new milestone early on Monday, unlocking a fresh record high of 2,631 following two consecutive impressive weeks in uncharted territory, which boosted the price by 5%.

The precious metal is sailing in overbought waters according to the RSI and the stochastic oscillator, and with the price hanging around the upper Bollinger band and the upper band of an upward-sloping channel, the risk for a downside correction or some stability is increasing. An interesting observation from the Elliot wave in the chart suggests that the market might be approaching the end of wave 3 in the bullish pattern, indicating a potential pause before wave 4 initiates.

If the bulls stay trapped below the channel’s resistance line at 2,640, the spotlight will turn to the bottom of the channel and the 2,530-2,550 support region, which includes the 20-day simple moving average (SMA). A break lower could pause near the 50-day SMA and the almost flat constraining line which triggered September’s upturn at 2,480 and 2,465 respectively. Then, the bears could target the 2,425 region.

On the upside, if the rally continues above 2,640, the next obstacle could pop up near the 2,700 psychological mark. Even higher, the price may retest the tentative ascending line which connects the December 2023 and April 2024 highs at 2,800.

In a nutshell, the recent bullish trend in gold might lose momentum soon, but any drop in price could be temporary if it remains above 2,465.  

Eurozone economic activity showed further signs of weakness in September as both manufacturing and services sectors struggled. PMI Manufacturing Index dropped from 45.8 to 44.8, a nine-month low, while PMI Services fell from 52.9 to 50.5, a seven-month low. As a result, PMI Composite slid back into contraction, dropping farm 51.0 to 48.9—its lowest in eight months.

Cyrus de la Rubia, Chief Economist at HCOB expressed growing concerns that Eurozone is "heading towards stagnation." The decline in the Composite PMI in September marked the largest drop in 15 months. This weakening momentum is particularly worrying as both new orders and order backlogs are rapidly decreasing, signaling that further economic deterioration is likely.

The manufacturing sector, in particular, is in a prolonged slump, with the recession now stretching into its 27th consecutive month. Job cuts in the manufacturing sector have accelerated, with layoffs occurring at the fastest pace since August 2020. Even the services sector, which had been a bright spot for growth, is now showing signs of cooling, with employment growth nearly flat for the fourth straight month.

Input and output price inflation have eased, particularly in the services sector. With ongoing economic contraction, the possibility of a rate cut in October is ""very well be on the table", de la Rubia noted.

Full Eurozone PMI release here.

Germany’s economic outlook has worsened with the latest PMI data showing continued weakness in both manufacturing and services. PMI Manufacturing fell  from 42.4 to 40.3 in September, marking a 12-month low. PMI Services dropped to from 51.2 to 50.6, a six-month low. PMI Composite PMI declined from 48.4 to 47.2, a seven-month low.

Cyrus de la Rubia, Chief Economist at Hamburg Commercial Bank, commented on the deepening downturn in the manufacturing sector, saying, “The hope for an early recovery has evaporated,” as output plunged at its fastest rate in a year, with new orders collapsing. The sector’s troubles have prompted significant layoffs, with several major automotive suppliers announcing job cuts.

These concerning trends in manufacturing are now beginning to affect Germany's traditionally robust services sector. De la Rubia warned that activity growth among service providers has slowed for four consecutive months, edging toward stagnation.

A technical recession appears to be "baked in". According to HCOB's Nowcast, Germany’s economy is expected to shrink by -0.2% in Q3, following a -0.1% contraction in Q2.

Full Germany PMI release here.

France’s economy took a sharp downturn in September as PMI Services dropped significantly from 55.0 to 48.3, marking a six-month low. The broader PMI Composite also fell from 53.1 to 47.4, an eight-month low, signaling a shift back to contraction. While PMI Manufacturing saw a slight uptick from 43.9 to 44.0, it remains in contractionary territory.

According to Tariq Kamal Chaudhry, economist at Hamburg Commercial Bank, the strong growth seen in August was short-lived, with the surge largely driven by "an Olympics-related anomaly" that has since dissipated. He noted that the situation in manufacturing continues to struggle, much like in previous months.

Chaudhry pointed out that their Nowcast predicts "near stagnation" for the French economy in Q3, aligning France with other Eurozone economies facing significant growth challenges.

Full France PMI release here.

AUDUSD poised for a move—traders should stay alert!

The AUDUSD pair, often referred to by traders as the "Aussie," is a major currency pair representing the exchange rate between the Australian and US Dollar. The Australian Dollar is heavily influenced by commodity prices (especially iron ore and gold), interest rate decisions by the Reserve Bank of Australia, and domestic economic data like employment and inflation. On the other hand, the US dollar responds to US economic indicators, including employment reports, inflation data, and decisions by the Federal Reserve.

US manufacturing purchasing managers index (PMI), Sep 23, 15:45 (GMT+2)

The US Manufacturing PMI is forecasted at 48, up slightly from the previous 47.9. If the PMI result is better than expected, signaling stronger-than-anticipated growth in the manufacturing sector, this would likely strengthen the US Dollar. In that case, the AUDUSD pair would likely fall as the stronger Dollar weighs on the Australian Dollar. However, if the PMI falls short of expectations, reflecting further contraction in manufacturing, the US Dollar could weaken. This would likely lead to a rise in the AUDUSD pair as the Australian Dollar strengthens relative to the US currency.

Australia interest rate decision, Sep 24, 6:30 (GMT+2)

The Reserve Bank of Australia is expected to leave interest rates unchanged at 4.35%. If the RBA’s decision or accompanying statement turns out to be more hawkish than expected, such as signaling a future continuation of rates at current levels, it could lead to a slight rise in the Aussie dollar, pushing AUDUSD higher. On the other hand, if the RBA suddenly cuts rates or dovish forecasts suggest a softer approach to monetary policy, the Australian dollar is likely to weaken. This will lead to a decline in AUDUSD.

The Bank of Australia rate was last changed on November 7, 2023, from 4.10% to 4.35%, causing the price to spike!

US GDP QoQ, Sep 26, 14:30 (GMT+2)

The US GDP is forecasted to grow strongly at 3.0%, up from the previous 1.4%. If the actual GDP figure exceeds this forecast, indicating even stronger economic expansion, the US Dollar would likely gain further strength. In this scenario, the AUDUSD pair would likely decline as the US Dollar strengthens, overshadowing the Australian Dollar. Conversely, the US dollar could lose momentum if the GDP decreases more than expected. This would likely lead to an upward movement in the AUDUSD pair.

In the Daily timeframe, AUDUSD formed a rising wedge pattern in a short-term bullish impulse. The price has reached the upper trend line, with %R indicating a significant overbought condition. However, at the same time, Momentum has risen above the 100.0 level.

• If the price breaks the trend line above the resistance at 0.6820, the upside will be 0.6950, corresponding to 161.8 Fibonacci;
• A rebound and a break of the lower trendline below 0.6780 support will start a bearish scenario to 0.6650.