EUR/USD Forex Technical Analysis – Reaction to Germany Factory Orders Could Set Early Tone

The Euro is trading nearly flat early Wednesday after plunging the previous session to a 20-year low as soaring European gas prices fueled recession concerns. The single currency was also pressured by safe-haven demand for the U.S. Dollar. On Tuesday, the Euro posted its biggest single-day decline since COVID-19 shook up the financial markets in March 2020.

At 02:55 GMT, the EUR/USD is trading 1.0264, down 0.0001 or -0.01%. On Tuesday, the Invesco CurrencyShares Euro Trust ETF (FXE) settled at $94.89, down $1.57 or -1.63%.

Tuesday Recap

The EUR/USD was in the strong hands of sellers on Tuesday as the risk of Europe sliding into a recession jumped following a huge 17% surge in natural gas prices in both Europe and Britain.

The move in prices fanned the flames of inflation, which puts the pressure on their respective central banks to rate interest rates. Hiking rates runs the risk of thwarting economic growth to the point it causes a recession in the regions.

Several Reports Today, Capped by Fed Minutes

Looking ahead to Wednesday’s European trading session, traders will get the opportunity to react to the German Factory Orders report at 06:00 GMT. It is forecast to come in at minus 0.5%.

EU Economic Forecasts and Retail Sales follow at 09:00 GMT.

In the United States, traders are looking forward to the Final Services PMI report at 14:45 GMT. Following this data at 14:00 GMT is the JOLTS Job Openings report and the ISM Services PMI. The Federal Open Market Committee meeting minutes will be released at 18:00 GMT.

Traders will be watching the ISM Services PMI report closely. It could be the source of volatility if it comes in below expectations. Traders are looking for a reading of 51.6.

Short-Term Outlook

Technically speaking, the close under 1.0339 puts the EUR/USD in an extremely weak position with the daily chart indicating there is plenty of room to the downside with the December 2, 2002 main bottom at .9860 the next major target.

Fundamentally, traders will be looking for weakness in the ISM Services PMI report. As far as the minutes are concerned, traders will be looking for any comments about the chances of a recession and what the Fed would be willing to do to prevent such an event.

Fed Chair Powell recently said that the Fed has to hit inflation hard with big interest rate hikes or it will become entrenched in the economy. Traders will want to see how many Fed policymakers back his assessment. And how many disagree with running the risk of recession by hiking rates too aggressively.