EUR/USD faces risks ahead of economic data

The euro rallied yesterday in response to robust activity data in Europe, while US business growth slowed, causing the dollar index to slip and allowing the euro to reclaim some lost ground.

The Services PMI surged to its highest level in eleven months, driven by strong new orders and employment growth, further supporting the currency.

However, despite accelerated price hikes, service sector cost inflation remained subdued compared to previous highs. Business expectations for the upcoming year dipped to a three-month low, indicating diminishing confidence in the service sector.

While it rebounded to a certain extent during the last few days, the euro-dollar could remain exposed to the downside and displayed slight losses in early trading as traders anticipate a slew of economic data coming from Europe and the US over the coming days.

On Thursday, the euro could rebound if German Consumer Confidence figures exceed market expectations of -25.9 points. Furthermore, the euro-dollar pair might gain momentum if US GDP data falls below the market consensus of 2.5%, which is already below the previous reading of 3.4%. On Friday, core PCE prices could also affect the market.

Weaker-than-expected data in the US could weigh on US treasury yields which have been consolidating near this year’s high.