The EUR/USD fell for the fifth consecutive session as recessionary fears in the Eurozone (EU) surfaced. Traders are simultaneously preparing for the announcement of the US Federal Reserve (Fed) monetary policy decision on Wednesday, followed by the European Central Bank (ECB) decision on Thursday. The EUR/USD is currently trading at 1.1051, having reached a day high of 1.1086.
The movements of the currency pair will be shaped by economic statistics and central bank meetings on both sides of the Atlantic.
Wall Street continues to dominate market sentiment, with earnings from mega-tech giants such as Microsoft and Google supporting US indices. According to the Conference Board (CB) poll, consumer confidence in the United States (US) is rising, amid predictions of an impending recession. This, together with rising housing prices, lifted the US Dollar (USD) early in the North American session, while the EUR/USD fell to a new weekly low of 1.1020.
The EUR/USD fell further on Monday as S&P Global PMIs in the US were mixed, with manufacturing activity improving but services contracting. Nonetheless, the three-point increase in Manufacturing PMI from 46.1 to 49 lowered the Composite PMI rating to 52 from 53.2 in June. Despite the fact that numbers in the US provided an upbeat picture, traders would be looking forward to the ISM Manufacturing and Services PMI release at the beginning of August.
In contrast, the Eurozone (EU) is painting a bleak picture, with manufacturing activity in France, Germany, and the entire EU falling short of expectations and plummeting deeper into recessionary territory, fueling fears that the region could enter recession. Last week’s downwardly revised inflation figures, as well as a dramatic shift in posture by the ECB’s most hawkish members, Klas Knot and Joachim Nagel, to a data-dependent mode, could weaken the Euro (EUR) in the near term.
Meanwhile, early in the European session, business optimism in Germany fell further, weighing on the EUR/USD. Analysts cautioned that Germany’s economy is failing to rebound from a recession, as the Ifo Business Climate index fell to 87.3, below the expectation of 88.0.
Given the circumstances, the Federal Reserve is likely to raise interest rates by 25 basis points, with traders watching Fed Chair Jerome Powell’s press conference for hints on the Fed’s future monetary policy course. Across the Atlantic, the ECB is likely to raise rates by 25 basis points on Thursday, but the likelihood of a September rate hike has dwindled as the EU’s economy slows.
EUR/USD Price Analysis: Technical Perspective
Technically, the EUR/USD is neutrally oriented, having stopped its current fall around the 20-day Exponential Moving Average (EMA) of 1.1058. A daily close below the latter will reveal critical support levels, such as 1.1000, followed by the 50-day EMA at 1.0966. If EUR/USD buyers enter at that level, the major might push toward the 1.1100 level, followed by a test of the 1.1200 barrier.