EUR/USD at Risk of Sub-$1.0550 on Weak Private Sector PMIs

It is a busy day for the EUR/USD on the economic calendar. The private sector will be in the spotlight, with prelim December private sector PMI numbers for France, Germany, and the Eurozone due.

While the headline figures will be influential, price pressures, new orders, and supply chain updates will also provide direction.

On Thursday, the ECB delivered its inflation and growth forecasts, which painted a grim picture for the euro area and the EUR. For 2023, the ECB projected growth of 0.5%, down from 0.9% in September, while upwardly revising inflation from 5.5% to 6.3%.

Weak numbers, alongside the ECB’s determination to press ahead with rate hikes to tackle inflation, would test EUR/USD support.

Other stats include finalized November inflation for Italy and the Eurozone and euro area trade data. However, barring revisions from prelim numbers and a worse-than-forecasted trade deficit, the stats will likely play second fiddle to the PMIs.

With the market focus shifting from inflation to recession, ECB member chatter needs monitoring. However, no ECB members are speaking today, leaving comments to the media to influence.

EUR/USD Price Action

At the time of writing, the EUR was up 0.02% to $1.06281. The EUR/USD fell to an early low of $1.06222 before rising to a high of $1.06324.

Technical Indicators

The EUR/USD needs to move through the $1.0652 pivot to target the First Major Resistance Level (R1) at $1.0711 and the Thursday high of $1.07363. Better-than-expected PMI numbers would support a return to $1.07.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0796. The Third Major Resistance Level (R3) sits at $1.0940.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0567 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0550 and the Second Major Support Level (S2) at $1.0508.

The third Major Support Level (S3) sits at $1.0363.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 50-day EMA ($1.05685). The 50-day EMA moved away from the 100-day EMA, with the 100-day EMA pulling away from the 200-day EMA, delivering bullish signals.

A hold above the 50-day EMA ($1.05685) and S1 ($1.0567) would support a breakout from R1 ($1.0711) to target R2 ($1.0796). However, a fall through the 50-day EMA ($1.05685) and S1 ($1.0567) would bring S2 ($1.0508) into view. The 200-day EMA sits at $1.03533.

The US Session

It is a relatively quiet day ahead for the dollar. Prelim December private sector PMIs are due out later in the day. Following the bullish ISM Non-Manufacturing PMI number for November, a rise in the Services PMI would deliver dollar support.

However, barring a deeper contraction across the private sector, the PMIs will likely have a muted impact on Fed monetary policy.

With the FOMC blackout period over, FOMC member chatter will also need monitoring.