Bulls lose interest amid fresh EU recession fears

EUR/USD Current Price: 1.1122

• Daunting European data fueled speculation about further ECB interest rate cuts.
• Federal Reserve officials repeated their dovish message after cutting the benchmark rate.
• EUR/USD bounces back from sub-1.1100 but lacks positive momentum.

The EUR/USD pair fell during European trading hours to 1.1082, retrieving the 1.1100 threshold before the Wall Street open. The euro fell following the release of Hamburg Commercial Bank’s (HCOB) Flash Purchasing Managers’ Indices (PMI) in September, as almost every European figure missed expectations, signaling a continued pullback in the region. Germany’s economy sank “deeper into contraction,” the official report said, as the composite PMI fell for a fourth straight month to 47.2 from 48.4 in August. The manufacturing index eased to 40.3, while services output barely held within expansionary limits, falling further to 50.6 from 51.2 previously.

Eurozone composite PMI fell to 48.9, missing the 50.6 expected, with the manufacturing sector the worst performer. “The decline in production was the first in seven months and was recorded against the background of a sustained reduction in new orders. In fact, new business fell at its strongest pace since January,” according to HCOB.

Weak EU data prompted speculation that the European Central Bank (ECB) will continue to loosen monetary policy with further interest rate cuts, putting pressure on the euro. At the same time, the recent decision by the Federal Reserve (Fed) of the United States (US) to cut the benchmark interest rate by 50 basis points (bps) is affecting the US dollar.

Meanwhile, Fed speakers entertain market players. Their overall stance is accommodative, in line with the Fed’s latest announcement, and they are confident about economic progress. S&P Global will also release preliminary US PMI estimates for September.

EUR/USD short-term technical outlook

From a technical point of view, the EUR/USD pair risks extending its slide. The daily chart shows technical indicators falling to positive levels, while buyers are still trying to defend their downside around a now slightly bearish 20 Simple Moving Average (SMA) around 1.1090. The 100 and 200 SMAs maintain their bullish slopes, although they are too far below the shortest to be relevant in the coming sessions.

In the short term, the risk is also another foot lower. On the 4-hour chart, EUR/USD tested a flat SMA of 100 before retracing, but is holding below a directionless SMA of 20. At the same time, the Momentum indicator is aiming lower around the 100 line, while the Relative Strength Index (RSI) indicator is up, but around 47, far from supporting further gains.

Support levels: 1.1090 1.1050 1.1010

Resistance levels: 1.1160 1.1200 1.1250