EUR/USD bears flirt with 1.000 parity level with eyes on German/US inflation

• EUR/USD remains pressured around 20-year low, fade corrective pullback.
• Fears of economic slowdown, central banks’ aggression weigh on sentiment.
• US CPI for June will be crucial considering recently mixed data/events and Fed’s hawkish mood.

EUR/USD fails to extend the previous day’s rebound from the lowest levels in two decades, retreating to 1.0030 during Wednesday’s Asian session. In doing so, the major currency pair struggles for clear directions as the bears appear running out of steam while the bulls fear taking entries ahead of the key US Consumer Price Index (CPI) for June, not to forget Germany’s key inflation number for June, namely Harmonized Index of Consumer Prices (HICP). In addition to the pre-data caution, the market’s fears of recession and aggressive central bank actions also weigh on the EUR/USD prices.

US Dollar Index (DXY) refreshed its 20-year high the previous day before retreating from 108.55. The pullback joined cautious optimism spread by comments from the White House (WH) and softer US data to favor the corrective pullback before the latest weakness.

Also read: EUR/USD Forecast: Tepid bounce hints at a bearish breakout

Businessman calculating tax with coins on desk

Slowdown fears renew

Market’s slowdown fears remain on the table despite the White House (WH) Memo that appeared to have triggered cautious optimism the previous day. “The US economic data, including the June jobs report, are not consistent with a recession in the first or second quarters,” the White House said in a memo released on Tuesday, as reported by Reuters. The news contributed to the market’s profit booking moves ahead of the key data/events.

Downbeat data favor bears via risk-off mood

Softer economics from the US and Europe add strength to the recession fears. That said, a slump in the US NFIB Business Optimism Index for June, to the lowest since early 2013, appears to weigh on the EUR/USD prices amid fears of recession. Additionally, ZEW Survey data for July showed that German Economic Sentiment slumped to -53.8 while missing estimates of -38.3. Its counterpart for Eurozone also dropped to -51.1 versus the -28.0 previous reading and -32.8 expected. Further, Germany’s ZEW Survey Current Situation sub-index arrived at -45.8 in July compared to -34.5 expectations.  

China’s covid woes

Covid fears from China exert additional downside pressure on the EUR/USD prices. The reason could be linked to the virus variant’s faster spread in Shanghai and the announced lockdown in Wugang city of Henan Province. With the latest economic unlock not being too far, fresh activity restrictions could recall the market fears of economic slowdown and favor the pair bears.

IMF Forecasts

The latest economic projections from the International Monetary Fund (IMF) appear to have renewed fears of a slowdown and renewed the risk-aversion wave. IMF cuts US 2022 GDP growth projection to 2.3% from 2.9% in late June, due to revised US data. “The Fund included the new forecasts in the full report of its annual assessment of the U.S. economy, which highlighted the challenges of high inflation and the steep Federal Reserve interest rate hikes needed to control prices,” said Reuters.

Pre-inflation anxiety

Be it US CPI or German HICP both the inflation gauges are important for the EUR/USD traders as the European Central Bank (ECB) and the US Federal Reserve (Fed) are both up for faster rate hikes to battle the inflation. That said, the US CPI is expected to rise to 8.8% YoY from 8.6% whereas the final prints of the German HICP may match the initial forecasts of 8.2% YoY.

EUR/USD technical analysis

EUR/USD remains inside a four-month-old bearish megaphone formation, nearing the bearish trend widening the formation’s support line of late.

That said, the oversold RSI conditions could test the EUR/USD pair’s further weakness around the stated formation’s support line, close to 0.9920 at the latest.

Failing to do so could drag the major currency pair towards the December 2020 low near 0.9860.

Meanwhile, recovery moves need validation from two-month-old previous support near 1.0350. Even so, the stated formation’s resistance line and the 100-DMA, respectively near 1.0530 and 1.0710, could challenge the EUR/USD bulls afterward.

To sum up, EUR/USD has limited downside room but the corrective pullback is likely to reverse the bearish trend.

EUR/USD: Daily chart

Trend: Corrective pullback expected

EUR/USD rejected by 1.0000 psychological level, bearish bias intact