EUR/USD: Here’s why the euro has fallen to an eight-week low

EUR/USD: Here’s why the euro has fallen to an eight-week low
Written by:
Crispus Nyaga
25th September, 19:13
  • EUR/USD pair has dropped to the lowest level in eight weeks as investors react to the weak data from Europe
  • Data released this week showed that the bloc's services sector has started to slowdown.
  • The pair has also fallen because of the rising political and economic risks from the US.

The euro (EUR/USD) is on track for its second consecutive week in the red as investors remain concerned about the state of the Eurozone economy. The currency has also weakened because of the stronger dollar as political temperatures in the United States rise.

EUR/USD has been under pressure

European economy stalling

Recent economic data has shown that the European economy has started to weaken. This week, data from Markit showed that the crucial services sector started to stall in September. In France, the services PMI declined to 47.5 from the previous month’s 51.5. As a result, the composite PMI declined to 48.5. A PMI figure below 50 usually sends a sign that an industry is contracting.

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The same story happened in Germany, where the services PMI declined to 49.1. In the entire Eurozone, the PMI declined to 47.6 while the composite PMI fell to 50.1.

Other economic numbers like retail sales, industrial production, and manufacturing production have also shown that the region’s economy is trouble. Worse, the number of coronavirus cases in some Eurozone economy has started to rise.

For example, yesterday, the United Kingdom confirmed more than 6,000 cases and the Chief Medical Officer has warned that the worst is yet to come. While the UK is no longer part of the European Union, the rising cases mean that no country is immune. Similarly, the number of cases has been rising in countries like Spain and Belgium.

US dollar strength

The EUR/USD has also dropped because of the overall dollar strength. This week, the US dollar index, the gauge that measures the greenback’s strength against peers, has fallen by more than 1%. This decline is mostly because of the rising political risks in the United States. In two interviews this week, Donald Trump said that he will likely not concede if he loses the election to Joe Biden.

This, coupled with the fact that most Americans will be voting by mail, has increased the likelihood of a contested election. If it does happen, it will happen at a time when the United States is going through its deepest recession in decades.

Indeed, recent data shows that the strength of the US recovery has started to fade. Retail sales, services PMIs, and existing home sales numbers have all disappointed. And today, data from the statistics bureau showed that durable goods orders rose by just 0.4% in August. That was lower than the 1.5% increase that analysts were expecting. The core durable goods orders also rose by just 0.4%.

EUR/USD technical outlook

EUR/USD technical chart

The daily chart shows that the EUR/USD has been in a downward trend for the past few weeks. The pair is trading at the lowest level since July 24 and is below the 25-day and 10-day exponential moving averages. It has also moved below the 23.6% Fibonacci retracement level. Therefore, it seems like bears have prevailed, which is likely to see it move to the 38.2% retracement at 1.1483.

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