EUR/USD plummets below 1.1000 amid decelerating US economy and banking crisis fears

• US Consumer Confidence fell to its lowest level since July 2022.
• Economic activity reports by Regional Fed Banks portray a gloomy outlook for the US economy.
• ECB sources commented that the EU’s central bank is tilting towards a 25 bps rate hike.

EUR/USD dropped below the 1.1000 figure as risk aversion took center stage in Tuesday’s session. Successive reports that the economy in the United States (US) is decelerating, and reignited fears of March’s banking crisis, triggered a flight to safety. Therefore, the EUR/USD pair is trading at 1.0971, below after hitting a daily high of 1.1067, down 0.68%.

US Consumer Confidence hits new low as gloomy economic outlook persists, ECB hints a rate hike

Several Federal Reserve’s (Fed) Regional Banks revealed their Manufacturing and Services related Indices, with most reports suggesting an ongoing deceleration across the country. Additionally, the latest Consumer Confidence report for April, announced by the Conference Board (CB), came at 101.3, below the 104 estimated. The survey showed that consumers are becoming pessimistic about the economy, expecting the labor market to soften. That said, recessionary fears triggered flows toward the US Dollar; thus, the EUR/USD weakened.

The US Dollar Index (DXY), a measure of the American Dollar value against a basket of currencies, edged up 0.63%, at 101.942, even though US Treasury bond yields are collapsing. Odds that the Fed will hike 25 bps at the upcoming May meeting are at 84%, as reported by the CME FedWatch Tool. The report showed that investors are bracing for 50 bps rate cuts by the end of 2023.

In other data, US New Home Sales in March rose by 683K above estimates of 632K, a signal that easing mortgage rates is helping curb the housing market.

Across the pond, the Eurozone (EU) docket was empty, though late comments from European Central Bank (ECB) officials suggest at least a 25 bps interest rate increase is on the cards. The ECB Chief Economist Philip Lane noted that current data indicate a raise of rates is needed, though and guided that further hikes will depend on data. Later, Francois Villeroy added that inflation is at its peak and will reach the ECB’s target by the end of 2024.

Of late, some ECB insiders noted that the next meeting is tilting towards a 25 bps rate hike, but a negative print on April’s inflation could trigger a 50 bps rate hike, according to Econostream.

EUR/USD Technical Analysis

The EUR/USD is forming a bearish-engulfing candle pattern, suggesting that sellers outweigh buyers at the time of writing. However, a daily close below April 24 open price at 1.0990 is needed to pave the way for a pullback. Once that scenario plays out, the EUR/USD first support would be the 20-day Exponential Moving Average (EMA) at 1.0928. A breach of the latter will expose the April 17 cycle low at 1.0900. the EUR/USD’s next floor will be the confluence of the April 10 low and the 50-day EMA at around 1.0829/31 before slipping towards 1.0800.