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EUR/USD holds one-month lows below 1.0100 on recession fears and hawkish Fed speech

  • EUR/USD remains low after refreshing its monthly bottom the previous day.
  • Reports from European Central Bank policymakers, German finance ministry fueled fears of an economic slowdown.
  • Fed policymakers, stronger US data strengthens the dollar.
  • German PPI, risk catalyst to help identify short-term direction.

EUR/USD hovers in the middle of Friday’s Asian session Around 1.0090, it plummeted the previous day to refresh the monthly low. The major currency pairs have been burdened by a stronger dollar recently, as well as dire economic concerns at home.

Dollar surges as Philly Fed manufacturing survey and positive weekly jobless claims reject U.S. Recession fears thus hit their highest level in a month late Thursday. The activity gauge rose to 6.2 in August, compared with expectations for -5 and the previous -12.3, while weekly jobless claims fell to 250,000, below the consensus estimate of 265,000 and the previous revision of 252,000. So far, the U.S. dollar index (DXY) has refreshed its monthly high to 107.56 and was 107.51 as of press time. Economic concerns around China as well as Europe also boosted the U.S. dollar index, mainly due to the safe-haven demand for the greenback. San Francisco Fed President Mary Daly mentioned that they (the Fed) will continue to raise interest rates to “adjust the scale.” Either 50 basis points or 75 basis points would be appropriate, the policymaker added, hinting at a move for the September rate decision. However, Minneapolis Federal Reserve Neil Kashkari mentioned that he does not believe the county is currently in recession, according to Reuters. Additionally, historically hawkish St. Louis Fed President James Bullard said he is leaning toward another 75 basis point rate hike in September.

Goldman Sachs and Nomura both downgrade Dragon Country after witnessing latest rise in coronavirus numbers growth forecast. Also weighing on the Chinese economy are doubts about the ability of the People’s Bank of China (PBOC) to deal with recessionary woes. In addition, comments from the Office of the US Trade Representative that “early this fall, the United States and Taiwan will begin formal negotiations on a trade initiative,” appearing to reignite fears of a U.S.-China feud, also roiled market sentiment.

“The economic outlook for Germany, Europe’s largest economy, dims due to rising energy prices and supply chain disruptions,” Germany’s finance ministry told the European Central Bank Elsewhere, “a recession on its own will not be enough to control inflation,” Executive Board member Isabel Schnabel said on Thursday. The policymaker also backed the current policy of regional central banks. “The ECB will continue to raise interest rates to curb inflation,” said ECB Governing Council member Martins Kazaks in an interview with Latvian TV3 on Thursday, according to Bloomberg.

Against this backdrop, Wall Street closed mixed and capped S&P 500 futures, and as of press time, U.S. 10-year Treasury yields fell to 2.875% from a monthly high.

Looking ahead, Germany’s producer price index (PPI) is expected to increase by 32% year-on-year in July, compared to 32.7% previously. The calendar will be decorated. However, the main focus will be on qualitative catalysts for better trade-related decisions.

technical analysis

A clear downward break of the three-week uptrend line around 1.0180 at press time has left EUR/USD bears hopeful of revisiting the yearly low of 0.9952.

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