If the data leads to a stronger dollar, be wary of the euro falling below 1.08 against the dollar!

Market analyst James Skinner said that the euro entered a new week near a two-month high against the dollar, but quickly lost momentum. If U.S. economic data leads to another strengthening of the dollar and weakening of Asia-Pacific currencies, the euro could fall further to 1.08 or below.

The euro rallied at the start of the new week and maintained its momentum throughout European trading on Monday, but quickly lost steam in North American trading.

The Institute for Supply Management's (ISM) Manufacturing Purchasing Managers Index (PMI) survey showed that the U.S. industrial sector recession deepened last month after new orders, prices, and especially employment both fell, leading to weakness in most currencies and a strengthening of the dollar.

The report is a prelude to the larger and more important results of the latest service sector survey released on Thursday, which are widely expected to show the world's largest economy slipping into recession in June.

James Knightley, chief international economist at ING, said: "As the Federal Reserve appears intent on further rate hikes, these two rate-sensitive sectors - construction and manufacturing - may find themselves in a tougher position as we move into the second half of 2023. However, this [services] sector faces its own challenges, with 43 million Americans starting to pay off their student loans again in October. At an average cost of $350 per person per month, the total cost for a year is about $180 billion, or about 1 per cent of consumer spending."

The ISM survey was accompanied by data from the May survey of job openings and labour mobility, ahead of the June non-farm payrolls report on Friday, which is closely watched by the Fed's rate-setters.

US economic data this week could pose a greater downside risk to the euro, especially if European economic data continues to fall short of economists' expectations. The limited amount of European economic data this week is overshadowed by US retail sales data for May due on Thursday. However, the euro could weaken if the data show weakness in consumer spending.

In recent months, economic data on the European continent has continued to weaken, but this weakness has been mainly limited to manufacturing and economic sectors related to commodity exports, while services have been a bright spot in many countries.

An unexpected drop in retail sales on Thursday would have a major impact on European economic data, but the extent of its impact on the euro could depend on whether financial marekts believe it reduces the need or room for further ECB rate hikes.

Jordan Rochester, G10 FX strategist at Nomura, said: "Looking at the interest rate market, it is recommended to sell the euro against the dollar, which could fall to 1.05. Looking at the stock market, it is recommended to buy, thinking that the exchange rate will rise to 1.10. This is why the euro has been fluctuating against the dollar."

He added in a research note on Monday: "We expect bullish EUR/USD to push the pair higher, with a target of 1.12 by the end of August."

EUR/USD daily chart

At 13:41 on July 4, Beijing time, the euro was trading at 1.0896/97 against the dollar.