EUR/USD Eyes Return to Sub-$0.9750 After Disappointing September PMIs

It was a busy start to the European session for the EUR/USD. September manufacturing PMIs for Spain and Italy and finalized PMIs for France, Germany, and the Eurozone drew interest.

The PMIs were EUR negative, though the influence on the EUR was modest following Friday’s inflation figures.

Spain’s manufacturing PMI fell from 49.9 to 49.0, while Italy’s rose from 48.0 to 48.3. Economists forecast PMIs of 49.2 and 47.5, respectively.

The French manufacturing PMI fell from 50.6 to 47.7 versus a prelim 47.8, with Germany’s manufacturing PMI declining from 49.1 to 47.8 versus a prelim 48.3.

Member State PMIs Send the Eurozone PMI to a 27-Month Low of 48.4

In September, the Eurozone manufacturing PMI fell from 49.6 to a 27-month low of 48.4 versus a prelim 48.7.

According to the Markit Survey,

• Ireland was the only member state to record a sector expansion, while France and Germany sat at the bottom of the rankings.
• Manufacturing output across the Eurozone fell for a fourth consecutive month.
• Fading demand and supply shortages weighed on manufacturing output. Surging energy prices also led some manufacturers to curb factory output.
• New orders fell at the sharpest pace since May 2020, with high prices and economic uncertainty weighing.
• Backlogs fell at the most marked pace in over 24 months, while employment growth continued.
• However, the pace of hiring was the slowest since February 2021.
• Manufacturers reduced input purchases for the third month, reflecting manufacturer uncertainty.
• Input cost and output price pressures accelerated for the first time since April, driven by soaring energy prices.
• Manufacturers across the Eurozone were at their most pessimistic since May 2020.

While the stats influenced, ECB member reaction to the latest inflation figures will also draw attention. ECB President Christine Lagarde and Mr. Panetta are participating in the Eurogroup Meeting.

EUR/USD Price Action

At the time of writing, the EUR was down 0.07% to $0.97940.

A mixed start to the day saw the EUR rise from an early low of $0.97826 to a pre-stat high of $0.98346.

However, the disappointing PMIs sent the EUR back to sub-$0.98.

Technical Indicators

The EUR/USD needs to avoid the $0.9756 pivot to target the First Major Resistance Level (R1) at $0.9858. Following today’s PMI numbers, hawkish ECB member chatter would support a bullish session.

However, risk appetite will need to improve throughout the session to support a EUR/USD breakout from the Friday high of $0.98538. In the case of a breakout session, the EUR would likely test the Second Major Resistance Level (R2) at $0.9916 and resistance at $0.9950.

The Third Major Resistance Level (R3) sits at $1.0035.

A fall through the pivot would bring the First Major Support Level (S1) at $0.9739 into play. However, barring a market flight to safety, the EUR/USD pair would likely avoid sub-$0.9700 and the Second Major Support Level (S2) at $0.9677.

The Third Major Support Level (S3) sits at $0.9557.

While monetary policy divergence remains in favor of the dollar, ECB talk of 75-basis point rate hikes has narrowed the gap. However, today’s Eurozone PMI affirmed the economic divergence between the two economies ahead of the US PMIs later today.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 100-day EMA, currently at $0.98337. The 50-day EMA narrowed to the 100-day EMA, while the 100-day EMA fell back from the 200-day EMA, delivering mixed signals.

A EUR/USD move through the 100-day EMA ($0.98337) would give the bulls a run at R1 ($0.9858) to target $0.99. The 200-day EMA sits at $0.99294. However, a EUR/USD fall through the 50-day EMA ($0.97689) would bring the support levels into play.

The US Session

It is a busier day ahead on the US economic calendar. The US manufacturing sector is also in the spotlight, with the Markit and ISM survey PMIs due. We expect the ISM Manufacturing PMI to have more influence.

Economists forecast the ISM Manufacturing PMI to fall from 52.8 to 52.2 in September.

FOMC member commentary will also draw interest, with members Barkin and Bostic speaking today. Last week’s Core PCE Price Index showed a pickup in inflationary pressure. Any talk of percentage point rate hikes would fuel a dollar breakout.

There is also a Closed Board Fed meeting for the markets to track later today.

The probability of a 75-basis point November hike sits at 54.6% versus 45.4% for a 50-basis point move. (Based on CME Group numbers).