Ella 
EUR/USD attempts a modest rebound.
European stocks opened broadly lower.
EUR/USD seems to be finding some support around 1.0700.
The U.S. dollar index (DXY) is retreating after peaking recently.
Later Wednesday, the U.S. services sector will be in focus.
German factory orders fell 11.7% monthly in July.
Market focus remains on the US ISM Services PMI.
The euro (EUR) regained some balance against the U.S. dollar (USD), prompting modest gains in EUR/USD on Wednesday, off Tuesday’s multi-week lows around 1.0700.
After rising to a new six-month high just below the 105.00 round-figure mark in the previous session, the greenback is now facing some selling pressure, with the U.S. Dollar Index, which measures the greenback against a basket of major currencies, falling back to the 104.80/70 area. The index is still down slightly despite a clear rebound in Treasury yields at various times so far.
At the same time, the market is confident in the Federal Reserve’s (Fed) decision to stop raising interest rates this year. Additionally, some speculation has also surfaced that a rate cut may not materialize until March 2024.
In contrast, the European Central Bank (ECB) finds itself surrounded by high uncertainty over the future trajectory of interest rates beyond the summer. Market discussions revolve around the concept of stagflation, adding to the current ambiguity.
In terms of the euro, Germany’s construction purchasing managers’ index (PMI) rose slightly to 41.5 in August, and factory orders in July shrank sharply by 11.7% from the previous month. Broader euro zone retail sales will also be released later.
In the US, weekly mortgage applications are typically tracked by the MBA, followed by the IBD/TIPP Economic Optimism Index, the trade balance, the final August S&P Global Services PMI and the always relevant ISM Services PMI.
Daily market summary: Euro encounters initial scramble around 1.0700
EUR/USD attempted a modest recovery midweek.
U.S. yields resumed their so far clear northward trend.
ECB Governor Knot did not rule out the possibility of another interest rate hike.
Deflation and rifts in the U.S. labor market support the Fed’s pause in raising interest rates.
Markets continue to believe the Fed will cut interest rates in the second quarter of 2024.
EUR/USD has seen some initial respite from the ongoing violent pullback around 1.0700 so far. A recent breakdown of the key 200-day EMA (1.0820) continues to favor extending losses in the short term.
If EUR/USD accelerates its decline, it could revisit the May low of 1.0635 (May 31) before the March low of 1.0516 (March 15). Failure of the latter could see a test of the 2023 low of 1.0481 (6 Jan).
On the upside, EUR/USD is currently expected to target the key 200-day EMA at 1.0820. Going north from here, bulls should encounter stronger resistance at the weekly top at 1.0945 (August 30), then the 55-day EMA at 1.0953, and finally the psychological level at 1.1000 and the August top at 1.1064 (August 10). Once the latter is broken, EUR/USD will challenge the weekly peak of 1.1149 (July 27). If the pair breaks out of this area, it could ease some of the downside pressure and could see a 2023 peak at 1.1275 (July 18).
