During the Asian session on Friday, the EUR/USD pair weakened for the second consecutive trading day, trading around 1.1615. The US dollar remained firm, primarily supported by heightened market expectations of a hawkish policy stance from the Federal Reserve.
Simultaneously, prolonged energy disruptions stemming from geopolitical conflicts could transmit to US core consumer prices and inflation expectations, potentially further encouraging the Fed to maintain higher interest rates.
Additionally, a stronger growth outlook for the US economy provides further rationale for monetary tightening, offering additional support to the dollar.
Fed Turns Hawkish; Warsh to be Sworn in as Chair Today Federal Reserve officials remain cautious in assessing potential adjustments to short-term interest rates. While holding the federal funds rate steady for now, policymakers are gradually moving away from expectations of rate cuts, and their openness to rate hikes is increasing if inflation fails to cool.
The US Labor Department reported that initial jobless claims for the second week of May fell by 3,000 to 209,000, indicating continued resilience in the labor market. Meanwhile, continuing claims for the week ending May 9 rose to 1.782 million from 1.776 million.
Eurozone PMI Data Unexpectedly Contracts, Economic Outlook Worsens Another significant factor weighing on the EUR/USD pair is traders' negative reaction to the unexpected contraction in Eurozone economic activity. According to the latest preliminary PMI data from S&P Global, Eurozone business activity contracted at its fastest pace since late 2023 in May. The composite PMI plunged to 47.5 from 48.8 in April, hitting a 31-month low and falling well below the market forecast of 48.8. This marks the second consecutive month of contraction in the Eurozone's private sector, with a PMI below 50 indicating an acceleration in the economic slowdown.
More concerning is that the Eurozone economy faces a dual squeeze of "collapsing demand" and "soaring costs." On one hand, overall demand deteriorated sharply, with new orders in the private sector falling at the fastest pace in 18 months, and the decline in new export orders was the largest since January 2025. New business in the services sector declined significantly, while manufacturing demand, which had briefly recovered in April, fell back into contraction. On the other hand, input price inflation accelerated to a three-and-a-half-year high, and the prices charged by businesses to customers rose at the fastest pace in 38 months. S&P Global warned these price indicators suggest Eurozone inflation could approach 4% in the coming months.
Focus on German Economic Data Market attention is turning to German economic data scheduled for release today, which will provide crucial clues about the health of the Eurozone's largest economy. Regarding Germany's May IFO Business Climate Index, the index fell to 83.3 in April, a near two-year low. Economists expect a slight rebound to 83.5 for May, but it would still be well below the historical average, reflecting persistent business concerns over high energy costs and deteriorating trade conditions.
Concurrently, Germany's final Q1 GDP figure will be released. Preliminary estimates showed quarter-on-quarter growth of 0.3%, primarily driven by increases in private consumption and government spending. However, this data does not yet fully reflect the negative impact of conflict, as the shock to energy prices from Middle East tensions was concentrated after mid-to-late March. A joint economic forecast report has already revised down Germany's full-year 2026 growth forecast to 0.6%, with Deutsche Bank warning that growth could fall further to around 0.5% if energy disruptions persist.
Furthermore, the June GfK Consumer Confidence index is due. Against a backdrop of soaring energy bills and high inflation, German consumer purchasing power continues to be eroded. A further deterioration in the data would signal that private consumption could stagnate in the second quarter.
Institutions generally hold a cautious view on Germany's economic prospects. Data falling short of expectations today could further pressure the EUR/USD pair. If the data unexpectedly improves, it might offer the euro brief respite, but the scope for a rebound is expected to be limited.
Widening US-Eurozone Economic Divergence Weighs on Euro Near-Term In summary, the EUR/USD pair currently faces dual pressures. On one hand, rising hawkish Fed expectations, coupled with resilient US economic data, are supporting the dollar. On the other hand, Eurozone PMI data shows an accelerating economic contraction, with services demand severely depressed, while input price inflation has risen to a three-year high, creating a "stagflationary" scenario. With Warsh officially assuming the role of Fed Chair today, markets will closely watch for policy signals. In the near term, the EUR/USD pair is likely to remain under pressure. Its direction will depend on the divergence in US and Eurozone economic data, the progress of US-Iran negotiations, and subsequent policy statements from the European and US central banks.
EUR/USD Daily Technical Analysis From a daily chart perspective, the EUR/USD pair is currently trading around 1.1615, consolidating weakly near recent lows, with several technical indicators showing bearish signals.
Regarding the moving average system, all major moving averages are positioned above the current price, forming a clear bearish alignment. The MA20 is at 1.1691, the MA50 at 1.1654, the MA100 at 1.1699, and the MA200 at 1.1680, all above the current price, creating layers of resistance. This "price below all moving averages" alignment indicates the EUR/USD is in a clear downtrend. Notably, the pair has failed multiple times since late April to break above the 1.1700 level and has now traded below all moving averages for several consecutive sessions, suggesting a relatively firm short-term bearish structure. As of 13:41 Beijing time, the EUR/USD pair is quoted at 1.1614/15.
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