The Euro recorded a slight decline on Monday. EUR/USD was trading at 1.0835 in the European session, down 0.11% from the previous day.
Eurozone manufacturing nearing stabilisation
Eurozone manufacturing is still in contraction, but there is light at the end of the tunnel. The manufacturing PMI rose to 47.3 in May from 45.7 in April, slightly below market expectations of 47.4. This is the highest level in 14 months. Business confidence in future manufacturing conditions also rose, reaching its highest level in more than two years.
The contraction in manufacturing production also moderated in Germany, the euro zone's largest economy. The manufacturing PMI accelerated to 45.4 from 42.5 in April, in line with expectations. The euro zone and Germany are due to release their services PMIs on Tuesday, and both are expected to show growth.
This could be a historic week for the European Central Bank, which is widely expected to cut interest rates for the first time since March 2016 when it meets on Thursday. The ECB's rapid rate-tightening cycle has seen inflation fall from double digits to the current 2.6%. While this is still above the ECB's 2% target, the central bank is reasonably confident that inflation will not bounce back after the rate cut. The May CPI report released last week showed that headline and core CPI unexpectedly accelerated, but that is unlikely to deter the expected rate cut decision.
The US released the Personal Consumption Expenditures Price Index, the Federal Reserve's key inflation indicator, on Friday, which was unchanged as expected at 2.7% year-on-year and 0.3% month-on-month, indicating that inflation remains robust as the Fed seeks to lower it to its 2% target.
EUR/USD Technical
EUR/USD is testing the support at 1.0842, below which there is support at 1.0741.
The next resistance levels are 1.0895 and 1.0943.
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