Spanish and Italian Services and Composite PMI data for July showed strength, alongside German data revisions. However, French PMI downward revisions slightly affected the Eurozone Services and Composite numbers for the previous month.
June’s strong Industrial Production figures for France and Spain add to the trend of generally positive Eurozone data surprises. This is expected to support the euro, as there are expectations of the US Federal Reserve matching the European Central Bank’s policy easing stance.
Euro Stability And Potential
The euro is consolidating gains from the previous rally near the mid-1.15 level against the dollar. The presence of a bullish pattern suggests stability, with potential for the euro to rise above the 1.16 resistance to regain 1.17 or higher.
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We’re looking at the euro holding firm against the dollar around the 1.15 level this first week of August. This stability comes after a recent rally, suggesting a period of consolidation. Traders should watch this level closely as it could be a base for the next move.
The recent strength is backed by solid economic numbers coming out of the Eurozone last month. Positive services data from Spain and Italy, combined with strong industrial output from June in France and Spain, paint an encouraging picture. This trend of positive surprises is what’s giving the euro its underlying support.
Inflation And Economic Trends
Last week’s flash estimate for July’s Eurozone inflation came in at 2.3%, slightly above forecasts, reducing pressure on the ECB for immediate deep cuts. This contrasts with the latest US jobs report, which showed a slowdown in hiring and wage growth for July. These developments reinforce the view that the Federal Reserve may need to ease policy more aggressively than its European counterpart.
This situation feels similar to the setup we observed back in mid-2017, when improving Eurozone growth data started outpacing US expectations. Back then, the EUR/USD pair broke out of a long consolidation range and began a sustained upward trend. We could be seeing the early stages of a similar pattern now, driven by the same fundamental shifts.
Given this outlook, we believe derivative traders should consider positioning for euro strength in the coming weeks. Buying call options on the EUR/USD with strike prices at or above the 1.16 resistance level could be a viable strategy. This would allow traders to capitalize on a potential breakout towards the 1.17 mark or even higher.
