EUR/USD rebounds amid US-EU recession fears, as traders anticipate a Fed and ECB pause

• EUR/USD reverses earlier losses, trading at 1.0858, up 0.21%, as recession fears loom on both sides of the Atlantic.
• S&P Global PMIs show contraction in US and EU business activity, fueling speculation that central banks may pause tightening.
• US 10-year Treasury Note drops 12 basis points to 4.208%, weakening the USD; investors eye Powell’s upcoming speech for policy clues.

The Euro (EUR) reverses its course and trims its earlier losses that dragged the exchange rate to a new two-month low of 1.0802 on weaker Eurozone (EU) economic data, later mimicked by the United States (US). The fears of recession reignited on both sides of the Atlantic, though of late, the EUR/USD traded positively. At the time of writing, the EUR/USD exchanges hands at 1.0858, gains 0.21%.

Wall Street Rises on NVIDIA Earnings Hopes; Weak Economic Data Weighs on Both the Euro and the Dollar

Wall Street continues to trend up as market players brace for NVIDIA earnings reports. In contrast, bad economic reports on both sides of the Atlantic spurred speculations that the US Federal Reserve (Fed) and the European Central Bank (ECB) would pause their tightening cycle.

During the US session, S&P Global revealed that Manufacturing PMI dived further into contractionary territory at 47 from 49 in July and well below forecasts of an improvement to 49.3. The Services component dropped to 51.0 from 52.3 in July and missed expectations of 52.0. Consequently, the S&P Global Composite PMI, which involved both readings, stood at expansionary territory at 50.4, below the market’s expectation and July’s reading of 52.0,

The data weighed on the US Dollar (USD), weakening the buck and lifting the EUR/USD pair from around the 1.0800s area towards the 1.0830 area, followed by a leg-up towards the high 1.0860s, as US Treasury bond yields edged lower. The US 10-year Treasury Note is dropping 12 basis points at 4.208%, a headwind for the greenback.

A basket of six currencies measured against the American Dollar, the US Dollar Index (DXY), slips 0.17% and is down at 103.421.

Other data showed a US government report revealed that US Nonfarm Payrolls through March would probably be revised down by 306,000, smaller than analysts’ estimates of 500,000. Recently, US New Home Sales for July came at 4.4% MoM, exceeding the prior month’s data of -2.8%.

Across the pond, the EU business activity deepened into contractionary territory, with all the readings missing estimates, except for manufacturing activity. Germany revealed the exact figures, with services and composite further deteriorating while manufacturing ticked up. Given the backdrop, the ECB might refrain from increasing rates at the September meeting, as the whole bloc economy feels the pain of high interest rates as the central bank struggles to curb inflation.

Up next in the calendar, the US economic calendar will feature Durable Good Orders, the Chicago Fed National Activity Index, and Initial Jobless Claims. On Friday, the US Federal Reserve Chair Jerome Powell’s speech is much awaited by investors as they scramble for clues about upcoming monetary policy.

EUR/USD Price Analysis: Technical outlook

The EUR/USD daily chart portrays the pair as neutral to downward biased despite failing to crack the 200-day Moving Average (DMA) at 1.0797. Nevertheless, a daily close above the week’s open at 1.0866 is needed, so the EUR/USD pair could threaten the psychological 1.0900 level. In that outcome, the first resistance would be the August 23 high of 1.0871, followed by the 1.0900 mark. Otherwise, the EUR/USD could challenge the 1.0800 figure, followed by the 200-DMA.

EUR/USD Price Action – Daily chart