EUR/USD: the FMI could bring volatility

The EUR/USD is entering a period of neutrality, torn between contrasting signals on both sides of the Atlantic. In the eurozone, the composite PMI index stood at 51 in July, compared to 50.6 in June, reflecting slightly expanding activity, but still below its long-term average. Growth remains modest, driven mainly by services - particularly in Italy and Spain - while Germany is rebounding timidly. France, on the other hand, is posting a 10th consecutive month of contraction.

Despite sluggish domestic demand and exports declining for the 42nd consecutive month, companies in the European bloc are continuing to hire at a pace not seen in over a year. Cost pressures are easing in services, but selling prices are rising slightly. This context reinforces the scenario of further monetary easing by the ECB by the end of 2025, after the pause in July.

In the US, the publication of a disappointing employment report has profoundly altered monetary policy expectations. Goldman Sachs, for example, now forecasts three rate cuts as early as September, or even a 50 basis point reduction if employment pressures worsen. The markets are pricing in a 91% probability of a rate cut as early as the next FOMC meeting. This shift is accentuated by the institutional turmoil surrounding the Fed: the dismissal of the Director of the Bureau of Labour Statistics and the resignation of Governor Adriana Kugler are fueling fears of growing political interference.

In this dual context - structural weakness in the eurozone and monetary uncertainty in the United States - the euro is struggling to find a clear direction. If the growth differential remains in favor of the United States, the Fed's change of tone could ultimately limit the dollar's appreciation. This afternoon, traders will be watching the US PMI indices, which are likely to revive volatility in the foreign exchange market.

Finally, from a technical perspective, the EUR/USD is trading within a defined range between 1.14 and 1.18; breaking out of this zone will serve as a signal for the next directional move.

MEDIUM-TERM FORECAST
In light of the key chart factors we have mentioned, our medium-term view on the EUR/USD exchange rate is neutral.

We will maintain this neutral view as long as the EUR/USD is positioned between the support at $1.1460 and the resistance at $1.1674.