Euro clings to gains as US Dollar weakens on soft Services PMI

• The Euro edges modestly higher against the US Dollar on Tuesday, amid subdued momentum and cautious investor sentiment.
• Fresh US data paints a divided picture: S&P Global PMIs show resilience, but the ISM Services PMI slumps, revealing weakness in hiring and new orders.
• In the Eurozone, final PMI readings disappoint overall, though Germany shows signs of stabilization, helping cushion the downside.

The Euro (EUR) edges modestly higher against the US Dollar (USD) on Tuesday, with EUR/USD trading near 1.1575 during American hours amid a mixed macro backdrop and cautious sentiment. Tepid Eurozone growth indicators and soft US data are keeping both bulls and bears on the sidelines, resulting in subdued price action.

The pair staged a sharp rebound on Friday after a weaker-than-expected US Nonfarm Payrolls report revived Federal Reserve rate cut bets and pressured the Dollar. However, follow-through buying has been limited, with 1.1600 acting as a strong resistance barrier, while 1.1500 continues to offer solid support.. The current consolidation reflects a wait-and-see approach as traders look for a fresh catalyst.

Meanwhile, the US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, is ticking lower but holding steady above the 98.50 mark. At the time of writing, the index is hovering around 98.70.

Fresh US data released earlier on Tuesday offered a mixed snapshot of the services sector. The S&P Global Services Purchasing Managers Index (PMI) for July came in at 55.7, slightly above expectations of 55.2, while the Composite PMI rose to 55.1 from 54.6 -- both suggesting continued resilience in private sector activity. In contrast, the ISM Services PMI underwhelmed, slipping to 50.1 versus forecasts of 51.5. Weakness was evident in both new orders and employment: the Employment Index fell further to 46.4 from 47.2, while the New Orders Index dipped to 50.3 from 51.3. Meanwhile, cost pressures intensified, with the Prices Paid Index jumping to 69.9 from 67.5, highlighting persistent inflation concerns despite the broader slowdown.

Across the Atlantic, Eurozone PMI data released by S&P Global and Hamburg Commercial Bank (HCOB) came in softer than expected, reinforcing concerns about the region's growth outlook. The HCOB Eurozone Composite PMI for July printed at 50.9, missing the forecast of 51.0 and slipping from June's 51.0. Similarly, the Services PMI eased to 51.0, below both the expected and prior reading of 51.2.

Germany, however, offered a modest upside surprise. The Composite PMI rose to 50.6, beating forecasts of 50.3 and the previous 50.4. The Services PMI also ticked up to 50.6 from 50.1, suggesting fragile but gradually improving momentum in Europe's largest economy.

Separately, the latest Eurozone Producer Price Index (PPI) for June showed a notable rebound, offering a modest counterbalance to the weak PMI prints. Monthly PPI rose by 0.8%, in line with expectations and sharply reversing the -0.6% decline in May. On an annual basis, PPI increased 0.6%, slightly above the 0.5% forecast and up from the previous 0.3%.

Looking ahead, the near-term outlook for the Euro remains fragile amid rising concerns over the recently announced US-EU trade framework. European Commission Vice President Maroš Šefčovič confirmed on Tuesday that he is in contact with US officials Lutnick and Greer to begin implementing the provisional trade framework. However, an EU official warned that rejecting the deal would trigger an escalation, including steep tariffs on both sides. Amplifying those risks, President Donald Trump reiterated his threat to impose a 35% tariff on EU goods if the bloc fails to meet its obligations under the agreement. The tone underscores the deal's one-sided nature, reinforcing concerns over the Eurozone's trade vulnerability and limiting the upside in EUR/USD.