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Brown Brothers Harriman’s (BBH) Elias Haddad reports that EUR/USD has recovered part of its recent slump but remains below 1.1400. A stronger-than-expected Eurozone July PMI and a hawkish hold from the ECB support the Euro, though higher Oil prices keep growth risks skewed lower. Markets price around 75 bps of ECB tightening over the next year, seen limiting Euro downside rather than driving sustained gains.

Stronger PMI and ECB path support Euro

"EUR/USD recovered some of yesterday’s slump but is holding under 1.1400. The Eurozone July PMI was a lot stronger than anticipated. The composite PMI increased to a five-month high at 51.9 (consensus: 50.2, prior: 50.0) reflecting both a recovery in services business activity and a faster expansion in manufacturing production."

"Nevertheless, renewed oil price gains keep the risks tilted toward weaker Eurozone growth and higher inflation. That limits EUR/USD relief rallies."

"ECB delivered a hawkish hold yesterday. As was widely expected, the ECB left the policy rate unchanged at 2.25%. ECB President Christine Lagarde said the decision was unanimous, although some governors asked themselves whether a rate hike should be considered."

"The ECB is on track to lift rates 25bps at the next September 10 meeting (90% priced in). Over the next twelve months, the swaps curve implies nearly 75bps of tightening to 3.00%. That would leave the policy rate at the top of the ECB’s estimated neutral range (1.75%-3.00%)."

"Tighter monetary policy when the Eurozone economy is still operating below potential is more likely to limit EUR downside than push the currency higher because it raises the likelihood of a downward adjustment to ECB rate expectations."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• EUR/USD pares gains as a firmer US Dollar caps the upside.
• Strong US business activity, elevated Oil prices and new tariffs keep inflation risks in focus.
• Upbeat Eurozone PMI data and prospects of a September ECB hike offer limited support to the Euro.

EUR/USD pares earlier gains on Friday as the widening Middle East war and hawkish Federal Reserve (Fed) expectations keep the US Dollar (USD) pinned near recent highs. At the time of writing, the pair trades around 1.1377, hovering near a three-week low after retreating from an intraday high of 1.1401.

The Greenback also draws support from stronger business activity data. The preliminary S&P Global Composite Purchasing Managers’ Index (PMI) rose to an eight-month high of 53.6 in July from 51.9 in June, while the Services PMI climbed to 53.6 from 51.2. The Manufacturing PMI edged down to 53.8 from 53.9.

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, trades around 101.42, recovering from an intraday low of 101.25.

Meanwhile, West Texas Intermediate (WTI) is up nearly 8% this week as the Middle East war threatens shipping through two major energy routes, the Strait of Hormuz and Bab el-Mandeb. Elevated Oil prices keep inflation risks alive and reinforce expectations that the Fed may need to raise interest rates.

Trade tensions also add to the inflation concerns after the United States (US) imposed new tariffs of 10% and 12.5% on imports from 60 trading partners on Friday.

According to the CME FedWatch Tool, markets now see an 80% chance of a rate hike in September, while the Fed is widely expected to keep interest rates unchanged at its July 28-29 meeting.

The Euro (EUR) initially drew support from stronger-than-expected Eurozone business activity data. The preliminary HCOB Composite Purchasing Managers’ Index (PMI) rose to a five-month high of 51.9 in July from 50.0 in June, beating the market forecast of 50.2. The Services PMI climbed to 51.6 from 49.4, while the Manufacturing PMI increased to 52.0 from 51.4.

EUR front-end supported as ECB keeps September hike option open

According to TD Securities, the ECB “left the deposit rate on hold at 2.25%,” with the statement and press conference continuing to flag “inflationary pressures” and to stress the need for a “meeting-by-meeting approach,” thereby “leaving the door open for a September hike.” The bank notes that the immediate “market reaction was fairly muted,” and on the rates side it therefore “favour[s] a long bias for EUR front-end.” In foreign exchange, TD Securities observes that “EURUSD was muted on unchanged ECB guidance,” while “near-term EUR downside pressure stays.”

• USD/CAD trades around 1.4095 on Friday, up a modest 0.06% at the time of writing.
• July US PMI data points to stronger business activity, supporting the US Dollar.
• Canadian producer and raw material prices decline sharply, while lower Oil prices continue to weigh on the Canadian Dollar.

USD/CAD trades around 1.4095 on Friday at the time of writing, up a modest 0.06% as the US Dollar (USD) retains a slight advantage following the release of solid US economic data, while the Canadian Dollar (CAD) remains pressured by weak domestic indicators and softer Oil prices.

The United States (US) S&P Global Composite Purchasing Managers Index (PMI) rose to 53.6 in July from 51.9 in June, signaling an acceleration in private sector activity. The Services PMI improved to 53.6, while the Manufacturing PMI eased slightly to 53.8 from 53.9. According to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, the survey is consistent with annualized Gross Domestic Product (GDP) growth of around 2% in the third quarter, although supply chain disruptions and price pressures continue to intensify.

The stronger-than-expected data highlights the resilience of the US economy and helps support the US Dollar, although the immediate market reaction remains limited. Investors are now focused on next week's Federal Reserve (Fed) policy meeting for further guidance on the monetary policy outlook.

In Canada, Friday's data pointed to renewed weakness in producer prices. The Industrial Product Price Index fell 1.4% MoM in June after a revised 1.4% increase in May, while the Raw Material Price Index dropped 6.9%, well below market expectations. These figures add to the recent softer inflation data, reinforcing expectations that the Bank of Canada (BoC) could maintain a more accommodative policy stance than the Fed.

Meanwhile, lower Oil prices continue to cap support for the Canadian Dollar. The weakness in the energy market, combined with diverging monetary policy expectations between the Bank of Canada (BoC) and the Federal Reserve (Fed), as well as uncertainty surrounding the Trump administration's new tariffs, continues to provide a mildly supportive backdrop for USD/CAD in the near term.

CAD steadies as modestly better fundamentals offset trade tension overhang

Strategists at Scotiabank observe that the Canadian Dollar is essentially unchanged on the day, noting that “the CAD is all but flat on the session.” They judge the backdrop to be “a little more positive for the CAD in late week trading as US yields edge off their highs and front-end spreads narrow,” but caution that sentiment remains fragile. In their view, “the CAD may still struggle to gain support as trade tensions linger,” with PM Carney signalling that Canada is “weighing all options for possible retaliation if there is no agreement to avoid 50% tariffs next month.” From a technical standpoint, Scotiabank maintains a “neutral—there is still no real change in the CAD’s technical condition” stance, highlighting that “spot is pivoting around the 40-day MA (which has nudged up to 1.4081 this morning) and it remains well below USD resistance at 1.4125 and above initial support at 1.4060.”

Scotiabank strategists Shaun Osborne and Eric Theoret note the Canadian Dollar (CAD) is little changed against the US Dollar (USD), with slightly better fundamentals as United States (US) yields ease and spreads narrow. However, ongoing tariff uncertainty and comments from PM Carney on potential retaliation keep USD/CAD supported. Technically, the pair pivots around its 40-day moving average, with resistance near 1.4125 and support around 1.4060.

CAD steady with technical range intact

"The CAD is all but flat on the session. The fundamental backdrop for the CAD is a little more positive for the CAD is late week trading as US yields edge off their highs and front-end spreads narrow."

"But the CAD may still struggle to gain support as trade tensions linger. PM Carney said Canada is weighing all options for possible retaliation if there is no agreement to avoid 50% tariffs next month."

"Neutral—There is still no real change in the CAD’s technical condition."

"Spot is pivoting around the 40-day MA (which has nudged up to 1.4081 this morning) and it remains well below USD resistance at 1.4125 and above initial support at 1.4060."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

Rabobank’s Stefan Koopman expects the Bank of England (BoE) to keep Bank Rate at 3.75% on 30 July and unchanged through 2026, even as markets still price some chance of further tightening. Softer United Kingdom (UK) inflation, easing wage growth and weak activity data argue against hikes, but higher energy prices and geopolitical risks keep upside inflation pressures and the possibility of a later rate increase alive.

BoE seen on prolonged policy hold

"We expect the Bank of England MPC to leave Bank Rate unchanged at the 30 July meeting. Over the past five months, policy expectations have been outsourced almost entirely to events in the Middle East. The optimism of late May and early June has proved a false dawn, with only a limited trigger needed for Iran-US hostilities to resume."

"That gives the MPC room to hold rates. Bank Rate is already restrictive at 3.75%, the labour market is softening, and inflation expectations remain contained. For Governor Bailey and the centre of the Committee, that should be enough to resist another hike for now."

"We therefore still expect Bank Rate to remain on hold through the rest of the year. The risk is skewed towards a hike if energy prices stay high, but that would come at a cost. Tightening into a soft economy would raise the odds that the Bank has to reverse course next year."

"The key question is whether he stretches his reaction function once more now that energy risks have re-intensified, or whether he gives more weight to inflation persistence. That would increase the odds of a September rate increase."

"We therefore expect monetary policy to respond only if a lasting energy shock starts to feed into wages, prices or expectations. That has not happened yet. But the MPC is running out of cover."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)

• Gold steadies after Thursday’s sharp decline as the US Dollar and Treasury yields ease.
• Elevated Oil prices and new US tariffs keep inflation concerns and Fed rate-hike expectations in focus.
• XAU/USD holds above $4,000, but the technical outlook stays bearish below the Bollinger middle band.

Gold (XAU/USD) steadies on Friday after falling nearly 2% the previous day, as surging Oil prices fueled expectations that the Federal Reserve (Fed) may need to raise interest rates amid a worsening inflation outlook. At the time of writing, XAU/USD trades around $4,065 after hitting an intraday low of $4,022.

A pullback in Oil prices weighs modestly on the US Dollar and pushes US Treasury yields slightly lower, lending some support to the precious metal, which typically moves inversely to both. Still, the upside remains limited as market sentiment stays tied to the hawkish Fed narrative, while the prospects for peace in the Middle East appear slim in the near term.

According to the CME FedWatch Tool, markets now see a 78% chance of a rate hike in September, while the Fed is widely expected to keep interest rates unchanged at its July 28-29 meeting.

The latest US economic data reinforces the hawkish outlook. The preliminary S&P Global Composite Purchasing Managers Index (PMI) rose to an eight-month high of 53.6 in July from 51.9 in June, while the Services PMI climbed to 53.6 from 51.2. The Manufacturing PMI edged down to 53.8 from 53.9.

Trade tensions also add to the inflation concerns after the United States (US) imposed new tariffs of 10% and 12.5% on imports from 60 trading partners on Friday.

On the geopolitical front, the US military completed its 13th consecutive night of strikes on Iran. Meanwhile, US President Donald Trump told Axios that he was “considering a massive attack” and was “close to making a decision.” Iran has also targeted US military bases in Jordan and Bahrain.

The war is now threatening two major energy-shipping routes, the Strait of Hormuz and Bab el-Mandeb, raising the risk of prolonged supply disruption and keeping Oil prices elevated.

West Texas Intermediate (WTI) rallied 6% on Thursday, briefly climbing above $92.00. At the time of writing, WTI trades around $88.50, hovering near its highest level in more than a month.

Analysts at ING note that “despite ongoing geopolitical risks, gold has struggled to attract meaningful safe-haven demand since the conflict began,” with investor attention instead shifting toward “the inflationary implications of higher oil prices and the prospect of higher-for-longer interest rates.”

Against this backdrop, Gold’s near-term outlook remains tilted to the downside. However, the yellow metal continues to hold above the psychological $4,000 mark, leaving XAU/USD broadly range-bound between $4,000 and $4,200 for a fifth consecutive week.

Technical analysis: XAU/USD holds firm above $4,000

On the daily chart, XAU/USD maintains a bearish near-term tone, holding near the Bollinger middle band (20-period Simple Moving Average) at $4,069 and well below the 100-day simple moving average near $4,480.

The Relative Strength Index (RSI) hovers below the 50 line, while an elevated Average Directional Index above 35 hints that the prevailing downside phase still carries meaningful trend strength despite recent consolidation.

On the topside, initial resistance is located at the Bollinger middle band around $4,069, with further upside barriers at the upper Bollinger band near $4,180, followed by a more strategic horizontal resistance at $4,350 and the distant 100-day SMA around $4,480.

On the downside, immediate support emerges at the psychological $4,000 mark, followed by the lower Bollinger Band near $3,957. A more substantial demand zone is seen around $3,800, where buyers could step in if the decline extends.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Business activity in the United States' (US) private sector expanded at an accelerating pace in July, with the S&P Global Composite Purchasing Managers' Index (PMI) improving to 53.6 (preliminary) from 51.9 in June.

In this period, the Services PMI rose to 53.6 from 51.2, while the Manufacturing PMI ticked down to 53.8 from 53.9.

Assessing the survey's findings, "US businesses reported a good start to the third quarter, the ‘flash’ PMI survey data broadly consistent with GDP growing at an annualized 2.0% against a 1.2% pace signalled for the second quarter," said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence.

"July saw a concerning intensification of supply chain delays and accompanying renewed upturn in price pressures, constraining growth and subduing demand," Williamson added and noted that events over recent days in the Middle East will have only further exacerbate "supply chain and price worries."

Market reaction to US S&P Global PMI data

These figures don't seem to be having a noticeable impact on the US Dollar's performance. At the time of press, the USD Index was virtually unchanged on the day at 101.45.

This section below was published as a preview of the preliminary US S&P Global Purchasing Managers' Index (PMI) data for July at 10:00 GMT.

• The S&P Global flash PMIs for July are expected to show stable business expansion. 
• Investors will pay close attention to comments surrounding input costs.
• EUR/USD remains technically bearish in the near term. 

S&P Global will release the July flash Purchasing Managers Indices (PMIs) for the United States (US) on Friday. These surveys of top private-sector executives are seen as an early indicator of the country’s economic health.

Market participants anticipate the S&P Global Services PMI to decline slightly to 51.0 from 51.2 in June, while the S&P Global Manufacturing PMI is expected to edge higher to 54.5 from 53.9, with both prints remaining in the expansion territory above 50. In addition to headline PMI figures, the surveys also include comments on employment and input inflation, which could influence the US Dollar’s (USD) valuation. 

What can we expect from the next S&P Global PMI report?

While PMI surveys are forecast to reaffirm healthy business conditions in the private sector, details surrounding input costs could ramp up market volatility. Although the softer-than-expected June inflation data from the US eased bets for a Federal Reserve (Fed) interest rate hike in July, the recent increase in Oil prices caused investors to refrain from pricing in a prolonged policy hold.

With the US and Iran ramping up military aggression in the Middle East, the barrel of West Texas Intermediate (WTI) is up nearly 30% in July. In the meantime, the CME FedWatch Tool shows that markets are pricing in a nearly 80% probability of an at least 25 basis points (bps) Fed rate hike by September.

Previewing the PMI data, “we expect both the S&P manufacturing and services PMIs to improve in July. Manufacturing is likely to rebound to 54.5, in line with strong regional surveys in the month (Empire and Philly Fed),” TD Securities analysts said.

“Meanwhile, services is likely to continue improving to 51.5. NY Fed services improved in July, and we expect S&P to begin catching up to ISM,” they added. 

When will the July flash US S&P Global PMIs be released and how could they affect EUR/USD?

The S&P Global Manufacturing, Services, and Composite PMIs reports will be released at 13:45 GMT on Friday. As previously noted, they are expected to show that US business activity continued to expand in July.

In case the publication suggests that business owners are facing increasing input costs in July and considering transferring those costs to customers by raising prices, markets could see that as a sign of inflationary pressure resurfacing again. In this scenario, the USD could continue to gather strength heading into the weekend and weigh on EUR/USD.

Conversely, an unexpected drop into the contraction territory below 50, in either the headline Manufacturing or the Services PMI, could hurt the USD with the immediate reaction and help EUR/USD hold its ground.

Middle East tensions risk being underplayed in early July PMI signals

Analysts at Rabobank caution that the initial July PMI signals may not fully capture the latest geopolitical and commodity-market developments. They argue that “this preliminary reading may understate the impact of the escalation in the Middle East,” noting that “the July poll was probably conducted in the past two weeks, so the results may be skewed if many respondents replied early – and therefore could not fully factor in the current situation in the Middle East, or this week’s increase in oil prices.”

Eren Sengezer, European Session Lead Analyst, shares a brief technical outlook for EUR/USD:

“EUR/USD trades below the 20-day Simple Moving Average (SMA) following multiple failed attempts to clear that level earlier in the week. Additionally, the Relative Strength Index (RSI) indicator on the daily chart stays near 40, reaffirming the bearish stance.”

“On the downside, 1.1370-1.1350 (Bollinger Band lower arm, static level) aligns as the first support area ahead of 1.1270 (static level) and 1.1160 (static level). Looking north, the immediate resistance level could be spotted at 1.1420 (20-day SMA), followed by 1.1470 (Bollinger Band upper arm) and 1.1570 (100-day SMA).”

TD Securities reports that Canadian Retail Sales rose 1.0% month-on-month in May, matching consensus but slightly below its forecast. Gains were broad-based, led by gasoline stations, autos, general merchandise and sporting goods. Real sales were softer but still point to a modest rise in Q2 goods consumption, with flash data indicating a further 0.4% nominal increase in June.

Broad-based May retail sales gains

"Retail sales rose by 1.0% m/m in May to match the market consensus while falling short of TD's forecast for a slightly larger (+1.1%) increase."

"Gasoline stations (+3.1%) remained the key driver for retail sales in May, although strength was more broad-based than the last two months with a 0.9% rebound in the ex-autos/gas measure and gains across all nine subcomponents."

"Auto sales rose by 0.7% m/m to build on their 1.6% increase last month, while general merchandise (+1.0%) and sporting goods (+1.8%) also helped to support core spending."

"Sales were a little softer on a volume basis (+0.4%), but that is still enough to keep real Q2 goods consumption tracking towards a modest increase."

"New flash estimates also called for nominal spending to rise 0.4% in June, despite the drag from lower gasoline prices."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)