EUR/USD remains on the defensive above 1.0730, with eyes on EU Retail Sales, US Services PMI

• EURUSD attracts some sellers near 1.0735 amid fears of a potential recession.
• Eurozone Producer Price Index fell for the seventh straight month in July.
• US Factory Orders for July dropped to the lowest since mid-2020; investors anticipate another 25 basis point (bps) rate hike.
• Market players will focus on the German Factory Orders, Eurozone Retail Sales ahead of the US ISM Services PMI.

The EUR/USD pair remains under selling pressure near 1.0732 during the early Asian session on Wednesday. The Euro is weakened against the US Dollar (USD) amid fears of a recession in the Eurozone following the weaker economic data.

Data released by the Eurostat revealed on Tuesday that producer prices in the Eurozone fell for the seventh straight month in July. The Eurozone Producer Price Index (PPI) for July dropped to -0.5% MoM from -0.4% prior while the annual figure fell -7.6% from the previous’s reading of -3.4%. Additionally, HCOB Composite PMI for August declined to 46.7 from 47.0 in July. Finally, the HCOB Services PMI for the same period dropped to 47.9 from 48.3 in July. In response to the downbeat data, the Euro extends its downside as investors worry about the potential recession. The discouraging data might convince the European Central Bank (ECB) to abandon its hawkish stance for the upcoming meeting.

Earlier this week, ECB President Christine Lagarde emphasized the importance of central banks keeping inflation expectations firmly anchored. The ECB Council Member Joachim Nagel advocated for price stability but refrained from providing further details while his colleague Pierre Wunsch said that the central bank could do a little bit more and it's too early to talk about ending hikes entirely.

Across the pond, the US Factory Orders for July dropped to the lowest since mid-2020. The figure came in at -2.1% MoM, compared with a rise of 2.3% last month, and lower than the market's forecast of 0.1%. About last week’s data, the US Nonfarm Payrolls (NFP) for August came in at 187K, above the previous readings of 157K and above the market consensus of 170K.

Market participants anticipate a 25 basis point (bps) rate hike for the entire year, bringing rates to 5.75%, according to the World Interest Rates Probabilities (WIRP) tool. Apart from this, Federal Reserve (Fed) Governor Christopher Waller said the Fed has more room to raise interest rates. He added that the data will determine if the Fed needs to raise rates again and whether the Fed is done raising rates. This hawkish remark boosts the US Dollar firmer against the EUR and acts as a headwind for the EUR/USD pair.

Market participants will monitor the German Factory Orders and Eurozone Retail Sales for July for fresh impetus later in the day. On the US docket, the US ISM Services PMI for August will be released on Wednesday. Traders will take cues from the statement and find trading opportunities around the EUR/USD pair.