EUR/USD Price Forecast: Recession Fears Bring sub-$1.030 into View

For the EUR, it is a busy Tuesday on the Eurozone economic calendar.

French industrial production figures for May and member state and Eurozone service sector and composite PMIs for June drew interest.

It was a bearish set of numbers, with the Eurozone services and composite PMIs sinking the EUR.

According to Insee, industrial production stalled in May, following a 0.3% decline from April. Economists had forecast a 0.2% increase.

Of more influence were the PMI numbers, however.

According to finalized numbers, the Eurozone services PMI fell from 56.1 to 53.0, up from a prelim of 52.8.

Contributing to the downward revision were service PMI numbers for Italy and Spain. In Spain, the services PMI fell from 56.5 to 54.0, with Italy’s services PMI down from 53.7 to 51.6. Economists had forecast PMIs of 53.5 and 51.5, respectively.

As a result, the Eurozone composite PMI declined from 54.8 to 52.0, versus a prelim of 51.9.

According to the finalized June survey,

• The composite PMI fell to a 16-month low, with the services PMI at a 5-month low.
• Inflows of new work stalled, ending a 15-month run of growth.
• Demand from overseas waned, with the latest fall in exports the quickest in two years.
• Costs burdens continued to rise though at a slower pace than from the March peak.
• Business sentiment was the weakest since October 2020.

At the composite level by country,

• Spain ranked first, with a 3-month low of 53.6, followed by Ireland, with a 16-month low composite PMI of $52.8.
• Things were not much for France (14-month low), Germany (6-month low), and Italy (5-month low).

EUR/USD sensitivity to the PMI numbers was evident, with the EUR taking a big hit in response to the PMIs.

EUR/USD Price Action

At the time of writing, the EUR was down 0.81% to $1.03331.

A choppy morning saw the EUR rise to an early morning high of $1.04488 before sliding to a low of $1.03308.

The EUR/USD fell through the First Major Support Level at $1.0402 and the Second Major Support Level at $1.0386.

The Third Major Support Level at $1.0339 also failed to deliver support this morning.

Technical Indicators

The EUR/USD will need to move through the Major Support Levels and the $1.0432 pivot to target the First Major Resistance Level (R1) at $1.0448 and the Monday high of $1.04627.

Following the PMI numbers, however, investors will need to brush aside fears of an economic recession to support a return to $1.04.

An extended rebound would test the Second Major Resistance Level (R2) at $1.0479 and resistance at $1.05. The Third Major Resistance Level (R3) sits at $1.0525.

Failure to move through the Major Support Levels and the pivot would leave the Third Major Support Level (S1) at $1.0339 in play.

Barring an extended sell-off throughout the day, the EUR should avoid sub-$1.030.

Looking at the EMAs and the 4-hourly candlestick chart (below), it is a bearish signal.

This morning, EUR sat below the 50-day EMA, currently at $1.05992.

The 50-day EMA fell back from the 100-day EMA, with the 100-day EMA easing back from the 200-day EMA, EUR/USD price negative.

A return to $1.04 would support a recovery of the morning losses. However, the EUR/USD will likely fall well short of $1.05 and the 50-day EMA.

The US Session

Following the July 4 holiday, factory orders will draw interest later in the day. We expect EUR/USD sensitivity to the numbers as the markets fret over the economic outlook. Weak numbers would fuel further fears of a US recession.