EUR/USD Drops as Weak Eurozone PMI Fuels ECB Rate Cut Expectations

The report revealed an unexpected slowdown in both manufacturing and service sectors, leading to a drop in the Composite PMI to 50.1, barely above the threshold indicating expansion.

This weaker-than-expected economic activity has fueled expectations of further rate cuts by the European Central Bank (ECB). However, the PMI report also showed an increase in input prices in the service sector and stable selling prices, potentially complicating the ECB's decision-making process.

Meanwhile, the US Dollar strengthened amid risk aversion stemming from speculation about a potential Donald Trump victory in the upcoming US presidential elections and uncertainty surrounding the June Personal Consumption Expenditures Price Index (PCE) data.

The US Dollar Index (DXY) reached a fresh weekly high of 104.50, driven by expectations of Trump's return to power and the nomination of Kamala Harris as the Democratic candidate.

Investors are now eagerly awaiting the release of the core PCE inflation data, which could provide crucial insights into the Federal Reserve's (Fed) timeline for reducing interest rates. A decline in core PCE inflation would reinforce expectations of early rate cuts by the Fed, while stubborn figures could weaken those bets.

Technically, the EUR/USD pair has returned inside the Symmetrical Triangle formation after a failed breakout. The pair is trading below the 20-day Exponential Moving Average (EMA), suggesting potential for further downside towards round-level supports at 1.0800 and 1.0700. The 14-day Relative Strength Index (RSI) has also weakened, indicating a fading bullish momentum. On the upside, the round-level resistance at 1.0900 poses a significant challenge for Euro bulls.