By the end of yesterday, the US dollar had once again seized the initiative across both currency pairs. The euro lost ground — and this happened despite unexpectedly strong business activity readings in the euro area. The preliminary composite PMI for September rose to 53.1 from 52.0 in August, a 41-month high; the services PMI climbed to 53.0 and manufacturing to 53.4. Germany showed its best pace in almost a year as industrial activity finally began to recover, and France returned to expansion for the first time in ten months. Yet even that strong data didn't help the euro: markets were focused not on the euro area but on the dollar and the prospect of further Fed rate hikes.
Additional pressure came from ECB member Joachim Nagel of the Bundesbank, who said the euro area tightening process is not over and that inflation will remain high and continue to rise because of energy prices. The market largely ignored these signals and concentrated on the US side of the equation.
The pound sterling slumped much worse, losing more than 100 pips. The UK preliminary composite PMI for September fell to 51.7 from 52.5 in August, a three-month low; the services PMI — which accounts for roughly 70% of the economy — dropped to the same 51.7. The manufacturing index retreated to 51.4, a six-month low, and it was that industrial slowdown that dragged the pound down harder than other factors.
US data released in the afternoon were openly strong. The composite index jumped to 58.4 from 56.0 in August, a 62-month high and the fastest pace of growth in five years; services rose to 58.7 from 56.5, and manufacturing to 56.7 from 53.0. Private sector employment also increased at the fastest pace since June 2022. The beneficiary of this picture is the Federal Reserve: the economy is coping with soaring energy prices and elevated inflation without clear signs of a severe slowdown, so the regulator can keep raising interest rates regardless of President Trump's calls to cut them. It appears that if there is no rate hike in October, markets should expect at least one — and possibly two — further moves before year-end.
The divergence between the three largest economies is now perhaps the widest in a long time: the US is clearly accelerating, the euro area is growing slowly despite positive PMIs, and Britain is stalling. It is this divergence, rather than isolated statistical surprises, that provides the dollar with such firm support against both European currencies.
Today's economic calendar opens with Germany's IFO business climate index for September: the index is expected to rise to 89 from August's 88.8. The current situation indicator is also forecast to climb to around 89, roughly repeating August's level, while the expectations component — the most important of the three — is expected to continue its gradual uptrend that began in April, signaling a slow return of confidence among German businesses. The ECB's economic bulletin is also due, though I don't expect it to move the currency pair independently.
In the afternoon, attention shifts to weekly initial jobless claims in the US, where a rise is expected, and to the balance-of-payments data. But the main story of the day, I believe, will be remarks from three Fed officials — Thomas Barkin, Beth Hammack, and John Williams. This week, the overwhelming majority of regulator comments have pointed to the need for further rate hikes, although Williams has previously taken a more cautious, wait-and-see stance. If his tone today is softer than the general chorus, it could give the euro and pound a brief respite; if he joins the hawks, the dollar will get yet another reason to strengthen.
EUR/USD: 1-hour chart strategy On the 1-hour chart, in a bullish market, I'm watching 1.1373 for buys — a level that held several times yesterday and today — so a false-break scenario remains a valid entry for longs targeting a recovery to 1.1392. A breakout and retest of the range with a hold above it could lead to a correction to 1.1414, where the moving average sits and limits the euro's upside, and the further target is 1.1433, where I would consider selling the bounce for 15–20 pips. If buyers fail at 1.1373, a break and hold below would increase pressure on the euro — especially if German data are weak — and send the currency pair to the next support at 1.1355, where I'd consider longs only on a failed hold; the farther bounce target would then be 1.1335 for a 15–20 pip move.
GBP/USD: similar logic With the pound sterling in a bearish market, treat buy positions much more cautiously. I'm viewing sell entries around 1.3252 on a false break as a good point to target 1.3220; a confirmed break and hold below would open the way to 1.3189 and 1.3150, where I'd look to buy the rebound for a 25–30 pip correction, and long positions from those levels are only considered after a false breakout. If sellers don't show at 1.3252, a larger correction to the 1.3284 area (where the moving average sits) is possible — a false break there can also be a good short entry targeting 1.3313 on the rebound for 25–30 pips.
I expect today will continue to be shaped by the same divergence as yesterday: strong US data and a chorus of hawkish Fed voices working against the euro and especially the pound, which lacks any strong internal drivers for gains. German IFO strength might temporarily slow the euro's fall, but I lean toward the view that the decisive factor will be the tone of today's Fed speeches rather than the European calendar.
*تعینات کیا مراد ہے مارکیٹ کے تجزیات یہاں ارسال کیے جاتے ہیں جس کا مقصد آپ کی بیداری بڑھانا ہے، لیکن تجارت کرنے کے لئے ہدایات دینا نہیں.
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