EUR/USD Forecast: Resurgent US Dollar demand aims for a bearish breakout
|EUR/USD Current Price: 1.0624
- S&P Global PMIs signaled a steer economic contraction in the EU at the beginning of Q4.
- European Central Bank Christine Lagarde said the battle against inflation is going well.
- EUR/USD retreated sharply from near 1.0700, aims to extend its slide.
The EUR/USD pair flirted with the 1.0700 threshold on Tuesday as investors shrugged off war-related concerns and demanded high-yielding assets. Asian stock markets advanced, supporting the upbeat mood, alongside a sharp retracement in government bond yields after Monday’s peaks.
However, a batch of discouraging European data weighed on the Euro, with EUR/USD retreating towards the current 1.0620 price zone. The November German Gfk Consumer Confidence Survey printed at -28.1, falling more than anticipated and worsening from the previous -26.7. Furthermore, S&P Global released the preliminary estimates of the October Producer Manager Indexes (PMIs), which show a steeper-than-anticipated contraction.
“The German economy remained in contraction at the start of the fourth quarter,” the official report states, adding that there are “ further signs of weakness in activity spilling over to the labor market.” The Manufacturing PMI posted a modest improvement, printing at 40.7, while services output contracted to 48, a two-month low. For the Euro Zone, the economic downturn accelerated at the beginning of Q4, according to S&P Global. The Composite PMI plummeted to 46.5, the lowest in almost three years.
Meanwhile, European Central Bank (ECB) policymakers hit the wires. On the one hand, Gabriel Makhlouf, Governor of the Central Bank of Ireland, said that the Middle East unfolding crisis will likely impact economies, although adding that it was too early to assess such an impact. On the other hand, President Christine Lagarde said the battle against inflation is going well, speaking with the presidents of the European Commission. Lagarde is due to speak at the Hearing on Women in Finance and Economics before the European Parliament in Brussels.
After Wall Street’s opening, the United States (US) will publish the October Richmond Fed Manufacturing Index, while S&P Global will release the country's preliminary estimates of the October PMIs.
EUR/USD short-term technical outlook
The EUR/USD pair trades in the red but posted a higher high and a higher low on a daily basis, limiting the risk of a steeper decline. The pair holds well above a mildly bullish 20 Simple Moving Average (SMA), providing dynamic support at around 1.0545. The longer moving averages, in the meantime, slowly grind lower, converging in the 1.0820 price zone. Finally, technical indicators retreat from their intraday highs, holding within positive levels but gaining downward momentum.
The technical picture is quite similar in the near term, and according to the 4-hour chart. EUR/USD develops above all its moving averages, with a bullish 20 SMA about to cross a mildly bearish 200 SMA in the 1.0590 region. Technical indicators, in the meantime, retreated sharply from overbought readings, maintaining firmly bearish slopes within positive levels, anticipating a potential slide sub-1.0600.
Support levels: 1.0590 1.0545 1.0495
Resistance levels: 1.0640 1.0685 1.0720
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