EUR/USD Forecast: A small respite for the shared currency

EUR/USD Current Price: 0.9963

• S&P Global August flash estimate hinted at a steeper economic setback.
• Softer-than-anticipated US data put mild pressure on the greenback.
• EUR/USD failed to recover beyond parity; lower lows are still in sight.

The EUR/USD pair recovered some ground after falling to a fresh multi-year low of 0.9898, now trading in the 0.9960 price zone. Dismal US data was a chance to take some profits out of the table as the greenback was extremely overbought across the FX board.

S&P Global released the flash estimates of its August PMIs for the EU and the US, most of which disappointed. Business activity decelerated further after a soft start to the third quarter. German PMIs were slightly better than anticipated, although they still indicated economic contraction. The services index printed at 48.2, down from 49.7 in July, while the Manufacturing PMI resulted in 49.8. The downturn was linked to “a combination of factors that included uncertainty, high inflation and rising interest rates, all of which weighed notably on demand,” according to the official release.

The EU indexes were slightly better than anticipated but reflected economic contraction, as the seasonally adjusted Composite PMI dropped to 49.2 in August from 49.9 in July. Finally, the US Services PMI contracted to 44.1, while the manufacturing index expanded at a slower-than-anticipated pace, with the index down to 51.3 from 52.2 in July. Also, the US published the August Richmond Fed Manufacturing Index, which showed that activity deteriorated sharply, falling from 0 in July to -8.

Meanwhile, ECB Executive Board member Fabio Panetta painted a gloomy picture. He said that the central bank might need to adjust the monetary policy further as the probability of a recession increases.

On Wednesday, the focus will be on US data, as the country will publish July Durable Goods Orders, seen up by a modest 0.6% MoM, and July Pending Home Sales.

EUR/USD short-term technical outlook

The EUR/USD pair hit an intraday high of 1.0017 during US trading hours but could not retain gains above parity. Technical readings in the daily chart show that the risk remains skewed to the downside, as indicators barely lost their downward strength and hold within negative levels. Also, the pair is developing below all of its moving averages, although the 20 SMA is now directionless at around 1.0170.

The 4-hour chart shows that the intraday advance helped to correct oversold conditions but also that the downward bias prevails. Sellers surged around a bearish 20 SMA, which keeps heading south below the longer ones. Technical indicators, in the meantime, stabilized below their midlines after recovering from extreme levels. The risk remains skewed to the downside, with lower lows still in sight.

Support levels: 0.9945 0.9880 0.9840

Resistance levels: 1.0005 1.0050 1.0090

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