US dollar cautiously higher even after strong EU PMI data

The British pound declined against the US dollar as analysts reacted to UK manufacturing PMI data. The numbers, released by Markit, showed that the PMI rose to a 15-month high of 53.3 in July. That was better than June’s increase of 50.1. Analysts polled by Reuters were expecting the PMI to spike to 53.6. In a statement, Markit credited the rise to the reopening of companies and high orders from local and foreign buyers. Still, it is worth noting that the manufacturing sector represents a small part of the British economy. The services PMI numbers will come on Wednesday, a day ahead of the BOE interest rate decision.

The euro declined against the US dollar even after Markit released strong PMI numbers from Europe. The data showed that the manufacturing PMI moved to the expansion territory for the first time since February. The PMI rose to 51.8 from the previous 47.8. In Germany and France, the PMI rose to 51.0 and 52.4, respectively. These numbers, together with the previous strong retail sales, imply that the Eurozone economy is in a strong upward trend. Barring a second wave, the growth will be supercharged by the recently-passed recovery fund deal.

The US dollar index started the month on a high note today. The index is up by 0.35% because of the greenback’s strength against all its peer currencies. The currency will react to the ISM PMI data that will come out later today. Analysts expect that the manufacturing PMI will increase to 53.6 from the previous 52.6. Other PMI data from Markit is expected to show that the PMI rose to 51.3 from the previous 49.8. There are two main risks for the US economy. First, the number of coronavirus cases is rising, which puts the economy at risk. Second, divisions in Washington make it almost impossible to have a new stimulus deal by the end of the week.

GBP/USD

The GBP/USD pair declined slightly to an intraday low of 1.3022. This price is below last month’s high of 1.3167. On the four-hour chart, the price is still above the short- and longer-term moving averages while the RSI has dropped to the lowest level since Wednesday last week. Therefore, it seems like bears are now taking over, which means that the price is likely to continue falling as they start targeting moves below 1.3000.

EUR/USD

The EUR/USD declined sharply today as investors continued to rush to the US dollar. The pair is trading at 1.1720, which is its lowest level since Thursday. On the four-hour chart, the price is attempting to move below the 50-day EMA. Also, like the GBP/USD pair, bears seem to be getting in charge while the RSI has started to go up. Therefore, the pair is likely to continue falling as bears target the next support at 1.1700.

XAU/USD

The XAU/USD pair declined today as bears reacted to the stronger dollar. On the daily chart below, we see that the price is still above the 50-day and 100-day EMAs. Also, the pair is forming a rising wedge pattern, which is usually bearish. Further, the RSI has started moving in a downward trend. Therefore, while the pair may continue rising, the rising wedge implies that a new downward trend is possible.