EUR/USD licks its wounds around mid-1.1000s as Eurozone, German data flag recession fears, prod ECB hawks

• EUR/USD remains sidelined at the lowest level in two weeks after five-day downtrend.
• Eurozone, German PMI for July disappointed Euro bulls as manufacturing gauge slumped to multi-month low.
• Comparatively better US PMI, market’s fears of ECB policy pivot weigh on EUR/USD but upbeat sentiment tests the bears.
• ECB Bank Lending Survey, Germany’s IFO data and US CB Consumer Confidence will entertain traders.

EUR/USD holds lower grounds near 1.1065 after falling in the last five consecutive days to a fresh two-week low, mostly sidelined amid the early hours of Tuesday’s Asian session. That said, the Euro pair dropped the previous day as the monthly PMIs from the Eurozone and Germany bolstered the market’s fears of the economic slowdown in the old continent and tested hawkish bias about the European Central Bank (ECB). Also, comparatively better US data joined upbeat US Treasury bond yields to allow the US Dollar to rise further and exerted additional downside pressure on the major currency pair.

On Monday, the preliminary readings of the Eurozone HCOB Manufacturing PMI slumped to the lowest level since May 2020, to 42.7 for July from 43.4 prior and versus 43.5 market forecasts. That said, the Services PMI also eased to 51.1 for the said month from 52.0 prior and 52.5 expected while the Composite PMI slid to 48.9 from 49.9 previous readings and analysts’ estimations of 49.7. On the same line, German HCOB Manufacturing PMI also dropped to the 38-month low while Services and Composite PMIs declined below the market expectations and previous readings for July.

Talking about the first readings of the US S&P Global PMI for July, the headline Manufacturing PMI improved to 49.0 from 46.3 prior and 46.4 market forecasts while the Services PMI eased to 52.4 versus 54.0 expected and 54.4 previous readings. With this, the Composite PMI edged lower to 52.0 from 53.2 prior and 53.1 market forecasts. However, Chicago Fed National Activity Index for June slid to -0.32 from -0.28 prior (revised) and 0.03 market forecasts.

Considering the data, the US Dollar Index (DXY) rose for the fifth consecutive day to refresh the highest levels in nearly a fortnight while the Euro dropped across the board. With this in mind, Analysts at the ANZ said, “We are of the view that the expected 25bp rate rises from the FOMC and ECB this week will mark the end of the current tightening cycle although central banks are likely to maintain their hawkish guidance given still elevated inflation.”

Moving on, the ECB Bank Lending Survey and Germany’s IFO poll details will entertain EUR/USD traders ahead of the US CB Consumer Confidence. However, major attention will be given to Wednesday’s Fed monetary policy meeting and Thursday’s ECB announcements for clear directions.

Also read: Federal Reserve Preview: Powell can play three distinct cards, each with a different US Dollar move

Technical analysis

A daily closing beneath the previous resistance line from February, now an immediate hurdle around 1.1150, directs EUR/USD towards the previous monthly low of 1.1012.