EUR/USD Faces the Risk of Sub-$0.97 for the First Time Since 2002

It was a busy start to the European session for the EUR. Prelim September private sector PMIs for France, Germany, and the Eurozone drew plenty of interest. With supply chain issues a drag and the Eurozone getting ready to enter the winter months amidst a gas crisis, today’s numbers spelled more doom and gloom for the Eurozone economic outlook.

In September, the French services PMI unexpectedly rose from 51.2 to 53.0, while the manufacturing PMI fell from 50.6 to 47.8. Economists forecast PMIs of 50.5 and 49.8, respectively.

Things were not much better in Germany. The German services PMI declined from 47.7 to 45.4, with the manufacturing PMI down from 49.1 to 48.3. Economists forecast PMIs of 47.2 and 48.3, respectively.

Weaker private sector activity led the Eurozone composite PMI down from 48.9 to a 20-month low of 48.2 versus a forecast of 48.2.

According to the prelim survey,

• The services PMI fell from 49.8 to a 19-month low of 48.9, with the manufacturing PMI down from 49.6 to a 27-month low of 48.5.
• Business activity contracted for the third month in a row.
• Forward-looking indicators, including new orders, suggest more doom and gloom ahead.
• Soaring energy prices added to company cost burdens and impacted production, thus pointing to a pickup in inflationary pressure.
• Germany registered reduced activity, with a Composite PMI of 45.9 being the lowest since May 2020. Excluding the pandemic, the Composite was at its lowest since June 2009.
• Across the Eurozone, new orders for goods and services fell at a pace not seen since April 2013.
• While raw material supply constraints eased, rising energy prices pushed input price pressures across the private sector.
• Consequently, prices charged for goods and services accelerated at the most marked pace since June.
• Business optimism fell to the weakest level seen since May 2020 and November 2012 (excluding the pandemic).

From the ECB, there are no member speeches to consider today.

EUR/USD Price Action

At the time of writing, the EUR was down 0.79% to $0.97559. A bearish morning saw the EUR/USD fall from an early high of $0.98520 to a low of $0.97512.

The EUR fell through the First Major Support Level (S1) at $0.9791.

Technical Indicators

The EUR/USD needs to move through S1 and the $0.9849 pivot to target the First Major Resistance Level (R1) at $0.9892 and the Thursday high of $0.99074.

Following the Eurozone PMIs, the US private sector PMIs will need to disappoint to support a bullish EUR session. In the case of a breakout session, the EUR would likely test the Second Major Resistance Level (R2) at $0.9950 but fall short of $1.00. The Third Major Resistance Level (R3) sits at $1.0050.

Failure to move through S1 and the pivot would see the EUR/USD test the Second Major Support Level (S2) at $0.9749. However, barring a market flight to safety, the EUR/USD pair should avoid sub-$0.9700 and the Third Major Support Level (S3) at $0.9648.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The EUR/USD sits below the 50-day EMA, currently at $0.99372. The 50-day EMA slid back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.

A EUR/USD move through R1 ($0.9892) would give the bulls a run at the 50-day EMA ($0.99372) and R2 ($0.9950). The 200-day EMA sits at $1.00326. However, failure to move through the 50-day EMA would leave the Major Support Levels in play.

The US Session

It is a busier day ahead on the US economic calendar. US prelim private sector PMIs numbers for September are due. Expect the services PMI to have the most influence on the dollar and risk sentiment in general.

While economists forecast an increase from 43.7 to 45.0, the sector will likely continue to contract, which could drive a flight to safety.

Away from the numbers, FOMC member chatter would influence following Wednesday’s hawkish policy move. With the Dollar Spot Index now sitting around the 111 level, risk aversion could send the DXY on a path towards 115.