On Wednesday, the EUR/USD declined by 0.42% to wrap up the day at $1.09378. Risk aversion weighed on the EUR/USD, with increasing fears of a global economic recession and the US sovereign rating downgrade weighing.
After bearish manufacturing sector PMIs from Tuesday, the European private sector will be in focus for a second time this week. Service sector PMIs from Spain and Italy and finalized numbers for France, Germany, and the Eurozone will move the dial.
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Weaker service sector activity across Italy and Spain and a downward revision to the Eurozone services PMI would fuel recessionary jitters. According to the flash survey, the Eurozone services PMI fell from 52.0 to 51.1 in July.
The PMI numbers are survey-based but give the ECB and the markets a snapshot of conditions across the private sector. While the manufacturing sector traditionally has more weighting, service sector activity has had more influence post-COVID-19, with trade terms yet to return to normal. Waning service sector activity would raise the prospects of a Eurozone economic recession.
German trade data is also on the calendar but will likely play second fiddle to the services PMI.
ECB Executive Board Member Fabio Panetta is on the calendar to speak today. However, investors should monitor the news wires for chatter with the media.
This morning, service sector PMI numbers from China set the tone. The Caixin Services PMI rose from 53.9 to 54.1 in July. Economists forecast a PMI of 52.5.
The US Session
It is a busy US session, with US initial jobless claims and the all-important ISM Non-Manufacturing PMI in focus. Economists forecast the ISM Non-Manufacturing PMI to fall from 53.9 to 53.0. However, investors must consider the sub-components. These include employment, new business, and prices.
The US services sector accounts for more than 70% of the US economy, making the ISM Non-Manufacturing PMI a leading indicator. Weakening service sector activity would fuel recessionary jitters. The early signs of waning service sector activity include lower staffing levels, declining new orders, and weaker output prices. Increased competition for new work leads to falling output prices.
Other stats include finalized Markit survey-based service PMI, nonfarm productivity, unit labor costs, and factory orders. However, these stats should play second fiddle to the initial jobless claims and ISM survey-based numbers.
EUR/USD Price Action
Daily Chart
The Daily Chart showed the EUR/USD hover above the upper level of the $1.0900 – $1.0850 support band. However, after the bearish Wednesday session, the EUR/USD fell through the 50-day ($1.09709) while holding above the 200-day ($1.07873) EMAs, sending bearish near-term but bullish longer-term price signals.
A EUR/USD move through the 50-day EMA would support a run at the $1.1015 – $1.1060 resistance band. However, failure to move through the 50-day EMA ($1.09709) would leave the $1.0900 – 1.0850 support band in play.
Looking at the 14-Daily RSI, the 41.82 reading sends bearish price signals. The RSI suggests a fall through the upper level of the $1.0900 – 1.0850 support band.
4-Hourly Chart
Looking at the 4-Hourly Chart, the EUR/USD sits below the $1.1060 – $1.1015 resistance band. After the bearish Wednesday session, the EUR/USD remained below the 200-day ($1.10059) and 50-day ($1.10204) EMAs, sending bearish near and longer-term price signals.
The 50-day EMA narrowed on the 200-day EMA, signaling a run at the $1.0900 – 1.0850 support band. However, a EUR/USD move through the 200-day EMA ($1.10059) and the lower level of the $1.1015 – $1.1060 support band would give the bulls a run at the 50-day EMA ($1.10204).
The 14-4H RSI at 33.42 sends bearish EUR/USD price signals, with selling pressure outweighing buying pressure. Significantly, the RSI aligns with the 50-day EMA, signaling a fall to the $1.0900 – 1.0850 support band.
Price action today will hinge on the euro area and US services PMIs.
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