EUR/USD Strengthens Despite Data Suggesting Economy is Headed for Mild Recession
The Euro is trading higher against the U.S. Dollar on Monday after posting a two-sided trade earlier in the session. The single-currency is surprisingly strong following weak economic reports that signaled the Euro Zone would likely face a mild recession. The price action suggests this isn’t news to traders.
However, gains could be limited on growing fears the Fed will keep tightening into a recession. Last week, Fed Chairman Jerome Powell said the Fed could begin lowering rate hikes to 50 basis points in December and that the “terminal rate”, or point where the Fed stops raising, likely “will need to be somewhat higher” than indicated at the September meeting.
Friday’s hotter than expected U.S. Non-Farm Payrolls report raised concerns that the Fed could continue to raise rates 75 basis points in December or increase rates by 50 basis points for a longer period of time.
Meanwhile, in the Euro zone, business activity declined for a fifth month in November, suggesting the economy was sliding into a mild recession as consumers cut spending amid surging inflation, a survey showed.
“A fifth consecutive monthly falling output signaled by the Pmi adds to the likelihood that the Euro Zone is sliding into recession,” said Chris Williamson, chief business economist at S&P Global Market Intelligence.
“However, at present the downturn remains only modest, with an easing in the overall rate of contraction in November means so far the region looks set to see GDP contract by a mere 0.2%.”
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. A trade through the intraday high at 1.0595 will signal a resumption of the uptrend. A move through 1.0290 will change the main trend to down.
On the upside, the nearest resistance is the June 27 main top at 1.0615. The closest support is a 50% level at 1.0366.
Daily Swing Chart Technical Forecast
Trader reaction to 1.0560 is likely to determine the direction of the EUR/USD on Monday.
A sustained move over 1.0560 will indicate the presence of buyers with 1.0615 the next likely target. Sellers could come in on the first test of this level, but overtaking it could trigger an acceleration to the upside with the June 9 main top at 1.0774 the next target.
A sustained move under 1.0560 will signal the presence of sellers. If this move creates enough downside momentum then look for a test of the 50% level at 1.0366, followed by the main bottom at 1.0290. Taking out this level could trigger an acceleration to the downside.