EUR/USD rebound eyes parity as DXY retreats ahead of US data

• EUR/USD portrays corrective bounce from the lowest levels since December 2002.
• Hopes over Germany’s stimulus, mixed US/EU data allowed bears to take a breather.
• US ISM Services PMI, Sino-American tension and energy crisis will be important for fresh impulse.

EUR/USD consolidates the week-start losses as traders brace for full markets, as well as the key US activity data, during early Tuesday in Asia. In doing so, the major currency pair takes a U-turn from the lowest levels since late 2002 while posting mild gains around 0.9950 by the press time.

Moody’s confidence in Germany’s stimulus and capacity to defend the region from slipping into a chronic economic slowdown appeared to have recently favored the EUR/USD buyers. Germany's third fiscal relief plan will assist economic growth, per the rating giant’s latest statement reported by Reuters.

On the same line could be the CME’s FedWatch Tool which suggests a nearly 61% chance of the Fed’s 0.75% rate hike in September, versus more than 70% expected the last week. The reason could be linked to the downbeat US Nonfarm Payrolls (NFP).

The quote’s previous weakness could be linked to the impending recession woes in the bloc, as well as the firmer odds of the US Federal Reserve’s (Fed) faster rate hikes despite the recently mixed data. It should, however, be noted that the US holidays limited the EUR/USD weakness the previous day even as downbeat EU statistics and fears of more pain due to the energy crisis were noted.

Russia’s halting of energy supplies to European worsened the situation for the old continent after it joined the other Group of Seven (G7) leaders to announce a price cap on Moscow’s oil. Also adding to the European energy crisis were dimming hopes of the US-Iran oil deal and the output cut from the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+.

Also, the US-China tussles over the trade deal and Taiwan escalated on Monday as the Biden Administration announced its intention to continue with the Trump-era tariffs for now. These tariffs were examined for removal and signaled the likely improvement in the relations previously. Further, the US readiness to sell arms to Taiwan and Taipei’s no-visa entry for some of its friendly country residents, including the US, teased Beijing to utter harsh words for the US-Taiwan ties and increases the tussles.

It should be observed that Eurozone Sentix Investor Confidence Index came in at -31.8 in September from -25.2 in August vs. -27.5 expected. However, the expectations index dropped to the lowest since December 2008 to -37.0 while the current conditions index fell to -26.5. Also, the recently softer PMIs hint at the faster pace of the bloc’s rush towards recession.

Given the latest recession fears and Friday’s softer US data, the ISM Services PMI for August, expected 55.5 versus 56.7 prior, will be eyed closely to gauge the EUR/USD moves.

Also read: ISM Services PMI Preview: High bar to help dollar bears pass through and take over

Technical analysis

A three-week-old descending resistance line, around the 1.000 psychological magnet, restricts the short-term EUR/USD recovery even if the oversold RSI puts a floor under the prices near the 0.9900 threshold.