EUR/USD Bears to Target $1.09550 on Recession Jitters

It is a quiet day ahead for the EUR/USD. There are no euro area economic indicators for investors to consider.

The lack of economic indicators will leave the EUR/USD in the hands of market risk sentiment and central bank chatter. Recessionary fears have resurfaced following a tumble in German factory orders and a larger-than-expected fall in German industrial production.

Trade data from China set the tone this morning.

China’s dollar trade surplus widened from $88.19 billion to $90.21 billion in April versus a forecasted $71.60 billion. Significantly, imports tumbled by 7.9% year-over-year versus a 1.4% fall in March. Exports rose by 8.5% versus 14.8% in March. Economists forecast imports to decline by 5.0% and exports to increase by 8.0%.

While the trade data from China influenced market risk sentiment, investors should monitor ECB member commentary. ECB Chief Economist Philip Lane is on the calendar to speak today. Comments relating to the euro area economic outlook would move the dial as recessionary jitters resurface.

On Monday, the ECB Chief Economist spoke about inflation, saying,

“There’s a lot of disinflation coming this year (but) not quite yet. We’re still (seeing) a lot of momentum in inflation… there’s still momentum in food and core inflation.”

Lane added,

“This year (businesses) expect margins to fall quite a bit, because they may face cost increases, including labor cost increases, but they won’t be able to increase prices by so much because demand is normalizing.”

EUR/USD Price Action

This morning, the EUR/USD was down 0.10% to $1.09923. A mixed start to the day saw the EUR/USD rise to an early high of $1.10047 before falling to a low of $1.09848.

Technical Indicators

Resistance & Support Levels

The EUR/USD needs to move through the $1.1019 pivot to target the First Major Resistance Level (R1) at $1.1038 and the Monday high of $1.10536. A return to $1.1030 would signal a bullish session. However, the EUR/USD needs central bank commentary to support a breakout session.

In the case of an extended rally, the bulls will likely test the Second Major Resistance Level (R2) at $1.1072. The Third Major Resistance Level (R3) sits at $1.1126.

Failure to move through the pivot would leave the First Major Support Level (S1) at $1.0984 in play. However, barring an ECB-fueled sell-off, the EUR/USD pair should avoid sub-$1.0950. The Second Major Support Level (S2) at $1.0965 should limit the downside. The Third Major Support Level (S3) sits at $1.0912.

Looking at the EMAs and the 4-hourly chart, the EMAs sent more bearish signals. The EUR/USD sits below the 100-day EMA ($1.09943). The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bearish signals.

A move through the 100-day ($1.09943) and 50-day ($1.10150) EMAs would support a breakout from R1 ($1.1038) to give the bulls a run at R2 ($1.1072) and $1.11. However, failure to move through the 100-day EMA ($1.09943) would leave S1 ($1.0984) and $1.0950 into view. A move through the 50-day EMA would send a bullish signal.

The US Session

Looking ahead to the US session, it is a quiet day on the US economic calendar. There are no US economic indicators for investors to consider. A lack of stats will leave Fed chatter and market risk sentiment to influence ahead of the US CPI Report tomorrow.

Beyond the economic calendar, the banking sector, the US debt ceiling, and corporate earnings also need consideration.