EUR/USD Bears to Target Sub-$1.0875 on Recessionary Jitters

Highlights

• The EUR/USD struggled this morning, falling 0.04% to $1.09046.
• Disappointing manufacturing sector PMIs reignited fears of an ECB-induced euro area recession, leaving the EUR/USD on the back foot.
• German trade data will draw interest but will unlikely shift investor sentiment.

It is relatively quiet ahead for the EUR/USD. However, German trade data will draw interest early in the European session.

After disappointing manufacturing PMIs from Monday, a marked narrowing in the German trade surplus would test buyer appetite. Economists forecast Germany’s trade surplus to widen from €18.4 billion to €19.1 billion in May.

The German trade surplus would have to widen beyond forecasts to support a EUR/USD breakout.

Disappointing manufacturing PMI numbers from Monday signaled a grim economic outlook as central banks push ahead with rate hikes to bring inflation to target.

With the European economic calendar on the light side, investors should monitor ECB chatter throughout the day. However, no ECB Executive Board members are on the calendar to speak today, leaving commentary with the media to move the dial.

The US Session

It is a quiet day on the US economic calendar, with no US economic indicators to consider. The US markets closed for the Fourth of July holiday.

ISM Manufacturing PMI numbers from Monday eased bets on a September Fed rate hike but left the Fed on target for a 25-basis point move later this month. Significantly, there are no bets on a Fed rate cut until December, contributing to the recessionary jitters.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 89.9% versus 87.4% on Monday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 19.8%, down from 21.5% on Monday.

EUR/USD Price Action

This morning, the EUR/USD was down 0.04% to $1.09046. A mixed start to the day saw the EUR/USD rise to an early high of $1.09163 before falling to a low of $1.09022.

Daily Chart

The Daily Chart showed a EUR/USD hold above the $1.09 psychological resistance level. Looking at the EMAs, the EUR/USD sat above the 50-day ($1.08579) and 200-day ($1.07215) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continued to pull away from the 200-day EMA and reflected bullish momentum.

Looking at the 14-Daily RSI, the 53.51 reading signaled a moderately bullish trend, aligned with the 50-day and 200-day EMAs. Avoiding sub-$1.09 would support a move through the lower level ($1.09385) of the $1.09385 – $1.09525 resistance band to target $1.0950.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD faces strong resistance at the $1.0950 psychological level. After a choppy start to the week, the EUR/USD sits above the 50-day ($1.09043) and 200-day ($1.08649) EMAs, sending bullish signals. Significantly, the 50-day EMA pulled away from the 200-day EMA, signaling another run at the resistance range of $1.09385 – $1.09525.

However, the EUR/USD needs to hold above the 50-day EMAs to target last week’s high of $1.09766 (Tues).

The 14-4H RSI reading of 50 indicates a neutral stance. An upward trend would align the RSI with the EMAs and signals a run at the lower level ($1.09385) of the current resistance range of $1.09385 – $1.09525.