EUR/USD Faces Sub-$0.99 Ahead of US Labor Market and PMI Numbers

It was a busy start to the European session for the EUR/USD. Following the disappointing PMI numbers from Monday, the services sector was in the spotlight this morning. However, German trade data also drew interest ahead of the private sector PMIs.

In August, Germany’s trade surplus narrowed from €3.4 billion to €1.2 billion. Economists forecast a €4.0 billion surplus. Imports rose by 3.4% in August, while exports increased by a more modest 1.6%.

Member State Services PMI Numbers Disappoint

In September, Spain’s services PMI fell from 50.6 to 48.5, with Italy’s PMI declining from 50.5 to 48.8. Economists forecast PMIs of 49.8 and 49.1, respectively.

The French Services PMI rose from 51.2 to 52.9 (Prelim: 53.0). Germany’s services PMI fell from 47.7 to 45.0 (Prelim: 45.4).

As a result of the member state numbers, the Eurozone services PMI fell from 49.8 to 48.8 versus a prelim 48.9. The Composite PMI came in at 48.1, down from an August 48.9 and prelim 48.2.

According to the finalized Eurozone S&P Global Survey,

• Business activity fell at the sharpest pace since January 2021.
• Manufacturers and service providers experienced a more marked contraction at the end of the third quarter.
• While high energy costs and ongoing supply chain issues plagued manufacturers, high inflation was also a significant impediment to service sector activity.
• New business fell for the third month in a row, with the rate of decline being the strongest since November 2020.
• Only Ireland and France registered growth across the private sector, with composites rising to two-month highs.
• By contrast, Germany sat at the foot of the table, with a 28-month low composite PMI of 45.7.
• Price pressures persisted, with output price inflation at its most marked in three months.
• Business confidence across the euro area tumbled to its lowest level since the initial outbreak of COVID-19.
• Lower business confidence weighed on the hiring. The rate of job creation slowed to an 18-month low.

While no ECB members are due to speak today, the markets will need to monitor any chatter with the media. The markets are betting on a 75-basis point ECB rate hike as bets of a 75-basis point Fed rate hike reverse. However, today’s PMI numbers may force ECB members to reconsider.

EUR/USD Price Action

At the time of writing, the EUR was down 0.47% to $0.99384. The EUR/USD rose to a pre-stat high of $0.99949 before hitting reverse. In response to the PMIs, the EUR/USD fell to a low of $0.99230.

Technical Indicators

The EUR/USD needs to avoid the $0.9930 pivot to target the First Major Resistance Level (R1) at $1.0055. Following today’s private sector PMIs, US stats would need to disappoint to support a return to parity and another breakout session.

In the case of an extended rally, the bulls will take a run at the Second Major Resistance Level (R2) at $1.0124. However, US economic indicators will need to disappoint to support a run at $1.0100. The Third Major Resistance Level (R3) sits at $1.0317.

A fall through the pivot would give the bears a run at the First Major Support Level (S1) at $0.9861. However, barring a market flight to safety, the EUR/USD pair would likely avoid sub-$0.98 and the Second Major Support Level (S2) at $0.9737.

The Third Major Support Level (S3) sits at $0.9544.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 200-day EMA, currently at $0.99266. The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish signals.

A bullish cross of the 50-day EMA through the 100-day EMA would support a breakout from R1 ($1.0055) to target $1.0100. However, a fall through the 200-day EMA ($0.99266) would give the bears a run at S1 ($0.9861) and the 100-day EMA ($0.98476).

The US Session

It is a busy day ahead on the US economic calendar. The US labor market and private sector are back in the spotlight.

Ahead of the US opening bell, September ADP nonfarm employment change figures will draw interest. Positive numbers would support a more hawkish Fed rate hike in November.

However, the all-important ISM Non-Manufacturing PMI needs to impress to support a Dollar Spot Index (DXY) breakout. We expect the markets to look beyond the headline figure, with the prices, employment, and new order sub-components also likely to influence.

FOMC member commentary will also need monitoring, with Raphael Bostic speaking late in the day.