Euro breaks below 1.11
The Euro (EUR) has continued its decline against the US Dollar (USD) for yet another session on Monday, resulting in EUR/USD breaking below the important support level of 1.1100 and reaching fresh lows for the past two weeks. Spot, however, manages well to stage a decent rebound with the immediate target above 1.1100 so far at the beginning of the week.
The drop in the pair's value is driven by the disappointing reports of preliminary Manufacturing and Services PMIs in Germany and the wider eurozone for July along with rising market chatter that a recession might by in the offing in the region.
Looking ahead, increased volatility in the pair is expected as crucial meetings by both the Federal Reserve and the European Central Bank (ECB) are scheduled later in the week. Both central banks are anticipated to raise interest rates by 25 bps. However, there is a growing divergence in their short-term plans for future tightening.
While the Federal Reserve appears to be nearing the end of its hiking cycle, indicating a potential pause or slowdown in future rate increases, some officials from the European Central Bank have recently expressed less-hawkish views on the likelihood of further rate hikes beyond the summer.
On another front, the speculative community increased their net longs in the euro to levels last seen in mid-May to nearly 180K contracts in the week ended on July 18 according to CFTC. The period under study saw a sharp pick-up in speculation over the end of the Fed's tightening cycle in response to another lower prints of US inflation during June, which morphed into fresh tops for EUR/USD north of 1.1200 the figure.
In the domestic calendar, flash Manufacturing PMI in Germany came in at 38.8 in July and 42.7 when it comes to the broader Eurozone, while the Services gauge stood at 52.0 and 51.1, respectively.
In the US, the Chicago Fed National Activity Index worsened to -0.32 in June, while flash data saw the Manufacturing and Services PMIs at 49.0 and 52.4 for the month of July.