EUR/USD Bears Eye $1.0650 on US ISM Non-Manufacturing PMI

It is a busy day ahead for the EUR/USD. German trade data will draw interest before services PMI numbers for Italy and Spain. Finalized services and composite PMIs for France, Germany, and the Eurozone will also need consideration.

Later in the day, euro area wholesale inflation numbers will also influence ahead of the US session.

With inflationary pressures easing in May, wholesale inflation figures need to signal further softening to support a less hawkish ECB. Economists forecast the Producer Price Index to rise by 5.9% year-over-year in April versus a 5.9% increase in March.

With the economic calendar on the busier side, investors should monitor central bank chatter throughout the Monday session.

ECB President Christine Lagarde is on the calendar to speak today. However, investors should monitor chatter with the media in response to the latest round of economic indicators.

Earlier today, PMI numbers from China set the tone. The Caixin Services PMI increased from 56.4 to 57.1, with the Caixin Composite PMI up from 52.9 to 55.6 in May. This morning’s PMI numbers were in stark contrast to the NBS PMI numbers that painted a grim picture of the Chinese economy.

EUR/USD Price Action

This morning, the EUR/USD was down 0.04% to $1.07020. A bearish start to the day saw the EUR/USD fall from an opening price of $1.07110 to an early low of $1.06901.

Technical Indicators

Resistance & Support Levels

The EUR/USD has to move through the $1.0730 pivot to target the First Major Resistance Level (R1) at $1.0755. A return to $1.0750 would signal a bullish session. However, the EUR/USD needs central bank commentary and economic indicators to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.0804. The Third Major Resistance Level (R3) sits at $1.0879.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0681 in play. However, barring a risk-off-fueled sell-off, the EUR/USD pair should avoid sub-$1.0650. The Second Major Support Level (S2) at $1.0656 should limit the downside. The Third Major Support Level (S3) sits at $1.0582.

Looking at the EMAs and the 4-hourly chart, the EMAs sent bearish signals. The EUR/USD sits below the 50-day EMA ($1.07364). The 50-day EMA pulled back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, delivering bullish signals.

A move through the 50-day EMA ($1.07364) and R1 ($1.0755) would give the bulls a run at the 100-day EMA ($1.07822) and R2 ($1.0804). However, failure to move through the 50-day EMA ($1.07364) would leave S1 ($1.0681) in view. A move through the 50-day EMA would send a bullish signal.

The US Session

Following the market-friendly US Jobs Report, US economic indicators will also provide direction. The all-important ISM Non-Manufacturing PMI for May will be the main report of the day. Investors need to look beyond the headline figure, with employment, new orders, and price sub-components also likely to impact sentiment toward the Fed policy outlook.

Other stats include finalized S&P Global Composite and Services PMIs and factory orders. However, the stats should have a limited impact on the Fed.

Beyond the economic indicators, Fed commentary will need consideration. According to the CME FedWatch Tool, the probability of a June interest rate hike fell from 25.3% to 23.0% this morning. One week earlier, the chance of a 25-basis point hike stood at 64.2%.