EUR/USD and Sub-$1.08 in the Hands of Services PMIs

Highlights

• The EUR/USD had a mixed morning, falling to a low of $1.08747 before steadying.
• Recessionary jitters and a hawkish ECB continued to weigh ahead of a busy Wednesday session.
• After the disappointing manufacturing PMIs on Monday, service sector PMIs will be in focus today.

It is a busy day ahead for the EUR/USD. Service sector PMIs for Italy and Spain and finalized services and composite PMIs for France, Germany, and the Eurozone will draw interest today.

After weaker manufacturing PMIs from Germany and Italy, a bearish set of service sector PMI surveys would fuel recessionary jitters. According to prelim figures, the Eurozone Services PMI fell from 55.1 to 52.4 in June.

With the private sector in the spotlight, investors should monitor ECB chatter throughout the day. However, no ECB Executive Board Members are on the calendar to speak today, leaving commentary with the media to move the dial.

While no ECB Executive Board Members are on the calendar, the ECB will release Consumer Expectation Survey results for May. The April survey revealed a sharp decline in consumer inflation expectations but also for income growth and spending growth. A shift in sentiment toward the economic outlook would draw interest.

In the April survey, consumer expectations for economic growth over the next 12 months became less bearish.

Earlier today, the China Caixin services PMI numbers set the tone. The Services PMI fell from 57.1 to 53.9. Economists forecast a fall to 56.2. As a result of the weaker Caixin Manufacturing PMI and Services PMI, the Chinese Composite PMI declined from 55.6 to 52.5.

The US Session

It is a quiet day on the US economic calendar. After the Fourth of July holiday, US factory orders will be in focus this afternoon. Following the disappointing ISM Manufacturing PMI number, an unexpected fall in factory orders would test the appetite for the dollar.

However, we don’t expect the numbers to influence the Fed, which should limit the impact on the EUR/USD.

FOMC member commentary would need consideration as investors consider post-summer plans.

According to the CME FedWatch Tool, the probability of a 25-basis point July Fed rate hike stood at 86.2% versus 86.8% on Monday. Significantly, the chances of the Fed lifting rates to 5.75% in September stood at 19.0%, down from 20.8% on Monday.

EUR/USD Price Action

This morning, the EUR/USD was up 0.01% to $1.08784. A mixed start to the day saw the EUR/USD rise to an early high of $1.08909 before falling to a low of $1.08747.

Daily Chart

The Daily Chart showed a EUR/USD remained below the $1.09 psychological resistance level. Looking at the EMAs, the EUR/USD sat above the 50-day ($1.08577) and 200-day ($1.07228) EMAs, signaling bullish momentum over the near and long term.

Notably, the 50-day EMA continued to pull away from the 200-day EMA and reflected bullish momentum.

However, looking at the 14-Daily RSI, the 50.75 reading signaled a moderately bullish trend, aligned with the 50-day and 200-day EMAs. A return to $1.09 would support a move through the lower level ($1.09385) of the $1.09385 – $1.09525 resistance band to target $1.0950.

4-Hourly Chart

Looking at the 4-Hourly Chart, the EUR/USD faces strong resistance at the $1.09 psychological level. After a choppy start to the week, the EUR/USD sits below the 50-day EMA ($1.09008) but above the 200-day EMA ($1.0862), sending bearish short-term but bullish long-term signals. Significantly, the 50-day EMA narrowed on the 200-day EMA, signaling a run at the $1.08465 – $1.08345 support range.

The EUR/USD needs to move through the 50-day EMAs to retarget the $1.09385 – $1.09525 resistance band.

The 14-4H RSI reading of 43.84 indicates a bearish stance, aligning with the 50-day EMA and signaling a run at the upper level of the current support range of $1.08465 – $1.08345.