EUR/USD defends 1.0100 amid economic slowdown fears, pre-Fed anxiety

• EUR/USD pares the biggest daily loss in two weeks.
• IMF’s economic forecasts highlight fears of recession in the bloc due to energy crisis.
• US Durable Goods Orders, housing data could entertain traders ahead of FOMC.
• Fed is expected to announce a 0.75 bps rate hike, Powell’s speech will be crucial.

EUR/USD licks its wounds around 1.0125-30 as bears take a breather after the biggest daily slump in 12 days. The quote dropped the most in two weeks amid escalated fears of economic slowdown in the old continent, mainly due to the Russia-linked energy crisis. Also weighing on the pair could be the US dollar’s run-up ahead of today’s US Durable Goods Orders for June and the Federal Open Market Committee (FOMC) meeting.

The European policymakers have a plan to tame the energy consumption during the next six months and avail additional sources to battle reduced gas supplies from Moscow. However, there isn’t any immediate solution to the energy crisis that pushes the old continent towards recession.

It’s worth noting that the International Monetary Fund (IMF) cut the global growth forecast once again this year, from 3.6% in their April review to 2.9%. The Washington-based organization also highlights a scenario of more economic hardships amid a full cut-off of Russian gas to Europe and 30% drop in Russian oil exports. Not only the IMF, but the global rating agency Moody’s also raised concerns over the bloc’s economic health considering the latest problems over the Russian gas supplies to Europe.

On a different page, global retail benchmark Walmart’s disappointing results and downbeat profit forecasts also weigh on the market sentiment.

In the case of data, the US CB Consumer Confidence fell for a third consecutive month in July, to 95.7 from 98.4 prior. Further, the US New Home Sales dropped to 0.59M for June versus 0.66M expected and 0.642M previous readout. On the same line, Richmond Fed Manufacturing Index rose to the highest level since April, to 0 from -13 expected and -9 prior (revised up from -11).

Against this backdrop, equities closed in the red and the US Treasury yields remain mostly pressured. However, the difference between the 2-year and the 10-year bond coupons widened the most since the year 2000 and highlighted the rush towards risk-safety.

Looking forward, EUR/USD may witness a lackluster session ahead of the Fed’s monetary policy meeting announcements, which in turn raise expectations of witnessing a corrective pullback. However, the hope of 0.75% rate hike and likely hawkish comments from Fed Chair Jerome Powell could keep the pair bears hopeful.

Also read: Fed Preview: Powell to reignite dollar rally with promise to crush inflation, whatever the cost

Technical analysis

EUR/USD pair’s U-turn from the 21-DMA, around 1.0200 by the press time, directs the major currency pair towards the 1.0070-65 horizontal support area before challenging the recent multi-month low around 0.9950.