The eurozone Composite PMI rose to 52.8 in June, exceeding expectations and staying in expansion territory for the fourth consecutive month. The services PMI came in at 53.5, while manufacturing PMI improved to 46.8. These data suggest the eurozone economy is gradually emerging from its trough in the first half of 2026.
EUR/USD rose to 1.0950 on the back of the PMI data. The improvement in eurozone economic fundamentals narrows the gap with the US, supporting the euro. ECB President Lagarde maintained a hawkish tone, stating more evidence is needed before considering rate cuts.
The monetary policy divergence between the Fed and ECB is becoming a key driver for EUR/USD. If the Fed cuts rates while the ECB holds steady, the euro could strengthen further. This divergence is creating significant trading opportunities in the forex market.
However, the eurozone recovery still faces challenges. German manufacturing orders remain weak, and French political uncertainty weighs on market sentiment. Eurozone wage growth remains elevated, which could delay the pace of inflation decline and affect ECB policy decisions.
From a trading perspective, EUR/USD turned bullish after breaking above 1.09. The next target is in the 1.1050-1.1100 range. The 1.10 level is a key psychological resistance that may require multiple attempts to break through. Buy on dips strategy is recommended.
Looking forward, EUR/USD will depend on the degree of policy divergence between the two central banks. If the Fed cuts rates in July while the ECB holds steady, the euro could strengthen further. But strong US data could provide support for the dollar.
For businesses and cross-border investors with euro exposure, the current environment of increased EUR/USD volatility makes hedging particularly important. Companies should consider using forward contracts and option strategies to lock in exchange rates.