Euro quiet as German services hits 12-month high

The euro is almost unchanged against the US dollar on Wednesday. EUR/USD is trading at 1.0883 in the North American session, up 0.04% on the day.

German, eurozone services PMI accelerate

The German services PMI was revised upwards to 54.2 in May, up from the initial estimate of 53.9. This beat the market estimate of 53.9 and was the strongest pace of growth in 12 months. An improvement in underlying demand helped drive business activity and business confidence was the highest since February 2022.

In the eurozone, the services PMI ticked lower to 53.2 in May, after two straight readings of 53.3. This points to respectable growth, which was boosted by stronger job creation. As well, business confidence hit its highest level since February 2022. The services sectors in both Germany and the eurozone have carried the economy, as the manufacturing sectors continue to decline.

The ECB is widely expected to cut rates on Thursday for the first time since 2019. The expectation is for a 0.25% cut which will bring the deposit rate to 3.75%. What happens after than is far less certain, as inflation has been sticky and is running at 2.6%, above the ECB target of 2%. The markets have priced in two cuts before the end of the year but inflation will have to cooperate for that to occur. ECB policymakers are concerned that a rate cut could allow inflation to rebound and have been careful not to signal any plans to lower rates in the second half of the year.

In the US, the ADP employment report eased to 152,000 in May, marking a three-month low. This was lower than the revised gain of 188,000 in April and shy of the market estimate of 175,000. The ADP release is not considered an accurate guide to the nonfarm payrolls report on Friday, but still attracts attention due to its proximity to the nonfarm payrolls release.

EUR/USD Technical

• EUR/USD is putting pressure on resistance at 1.0895. Above, there is resistance at 1.0943
• 1.0842 and 1.0794 are the next support levels