EUR/USD eases below 1.0750 as German recession woes join risk aversion, upbeat US data

• EUR/USD remains depressed at the lowest levels in two months after declining in the last three consecutive days.
• Germany’s negative revision to Q1 GDP supersedes hawkish ECB talks to weigh on Euro pair.
• Fears of US default, strong US statistics allow EUR/USD bears to keep the reins ahead of mid-ties US data.

EUR/USD bears occupy the driver’s seat around 1.0720 during Friday’s Asian session, near the two-month low marked the previous day. In doing so, the Euro pair justifies the broad US Dollar strength, as well as economic fears surrounding the Eurozone while keeping sellers hopeful after allowing them to dominate in the last three consecutive days.

On Thursday, the final reading of the German Gross Domestic Product (GDP) for Q1 2023 was revised down to -0.3% QoQ versus 0.0% estimated previously. Following the data, German Finance Minister Christian Lindner said on Thursday, “GDP data have shown surprisingly negative signals.”

Following that, European Central Bank (ECB) Governing Council member, Bostjan Vasle said in an interview with Slovenia’s Delo newspaper early Thursday that the central bank must continue raising interest rates further to bring inflation down to its target.

On the other hand, ECB Vice President Luis de Guindos said, “Downside inflation risks include banking tensions.”

Elsewhere, upbeat US data joins the fears of US default, as well as cautious mood ahead of a slew of the US statistics about Durable Goods Orders and inflation to underpin the latest run-up in the US Dollar and the yields. With this, the EUR/USD bears remain hopeful amid more positives for the US Dollar than those for the Euro.

Talking about data, the second estimation of the US Annualized Gross Domestic Product (GDP) for Q1 2023 was revised up to 1.3% versus 1.0% first forecasts. Further, the Chicago Fed National Activity Index for April improved to 0.07 from -0.37 prior and -0.02 market estimations. On the same line, Kansad Fed Manufacturing Activity improved to -2 for May compared to -21 previous readings and analysts’ estimations of -11. It’s worth noting that the US Pending Home Sales for April improved on YoY but eased on MoM whereas Core Personal Consumption Expenditures also rose to 5.0% during the preliminary readings versus 4.9% prior.

It should be noted that the looming fears of the US default also allow the US Dollar to dominate. Recently, US House Speaker Kevin McCarthy announced no agreement on the debt deal, as well as the continuation of talks by saying, “It’s hard. But we’re working and we’re going to continue to work until we get this done.”

Against this backdrop, the US Dollar Index (DXY) rose to the highest levels in 10 weeks, to 104.20 at the latest, whereas the US 10-year and two-year Treasury bond yields rose to the early March highs of around 3.82% and 4.54% in that order. That said, Wall Street closed mixed but S&P500 Futures is mildly offered at the latest.

Looking ahead, risk catalysts will be the key to determining short-term EUR/USD moves. Also important are the scheduled releases of the US Durable Goods Orders for April and the Core Personal Consumption Expenditure (PCE) Price Index for the said month, known as the Fed’s preferred inflation gauge.

Technical analysis

A daily closing below an eight-month-old ascending trend line, around 1.0800 by the press tie, keeps EUR/USD bears hopeful of poking the 200-day Exponential Moving Average (EMA) of around 1.0685 at the latest