EUR/USD and Sub-$1.045 in View on Services PMI and Recession Fears

It is a busy day for the EUR/USD on the economic calendar, with member states and the Eurozone’s private sector in focus.

Following the disappointing manufacturing PMI numbers from last week, the markets will look for the services sector to offset the impact of manufacturing sector woes on the Eurozone economy. Weak service sector PMI numbers could pressure the ECB to further reign in its policy intentions for December.

Other stats include Eurozone retail sales and Sentix Investor Confidence numbers. Dire numbers would pressure the EUR/USD.

With the markets focused on inflation, the economic outlook, and monetary policy, ECB chatter will also influence. ECB President Lagarde and ECB member Fabio Panetta will speak today.

EUR/USD Price Action

At the time of writing, the EUR was flat at $1.05407. A mixed start to the day saw the EUR/USD rise to an early high of $1.05478 before easing back.

Technical Indicators

The EUR/USD needs to avoid the $1.0504 pivot to target the First Major Resistance Level (R1) at $1.0581. Private sector PMIs and Eurozone retail sales figures will need to be EUR-friendly to support a breakout from R1.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0621 and resistance at $1.0650. The Third Major Resistance Level (R3) sits at $1.0738.

A fall through the pivot would bring the First Major Support Level (S1) at $1.0464 into play. However, barring a US data-fueled sell-off, the EUR/USD pair should avoid sub-$1.040 and the Second Major Support Level (S2) at $1.0388.

The third Major Support Level (S3) sits at $1.0271.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.04096). The 50-day EMA pulled away from the 100-day EMA, with the 100-day EMA widening from the 200-day EMA, delivering bullish signals.

A hold above S1 ($1.0464) and the 50-day EMA ($1.04096) would support a breakout from R1 ($1.0581) to target R2 ($1.0621). However, a fall through S1 ($1.0464) would bring the 50-day EMA ($1.04096) and S2 ($1.0388) into play. The 200-day EMA sits at $1.02002.

The US Session

It is a busy day ahead, with US factory orders and service sector PMI numbers in the spotlight. Following the contraction in the US manufacturing sector, according to the ISM PMI on Thursday, today’s ISM Non-Manufacturing PMI will draw the most interest.

We expect the headline number and the sub-components, including inflation, employment, and new orders to influence. A sharp fall in the headline number would raise fears of a US economic recession.

However, no FOMC members are speaking today, with the Fed entering the blackout period on Sunday.