EUR/USD bears eye 1.0635 as EU recession woes contrast with US soft landing concerns

• EUR/USD remains sidelined at the lowest level in three months after breaking the key support.
• Downbeat EU data joins unimpressive ECB talks to bolster recession woes for the bloc.
• US statistics, hawkish Fed comments favor softer landing concerns and fuel Greenback.
• Eurozone Retail Sales, US ISM Services PMI eyed to confirm technical signals suggesting further fall towards June’s low of 1.0635.

EUR/USD stays defensive around 1.0730 as it seeks more clues to confirm the latest bearish bias that pleased bears with a three-month low. That said, the contrasting economic concerns about the Eurozone and the US seemed to have weighed on the Euro pair the previous day before the pre-data anxiety that prods the pair sellers amid early hours of Wednesday’s trading.

With most of the Eurozone statistics coming out as disappointing, the European Central Bank (ECB) officials’ data-dependency seem to direct them towards exiting the hawkish cycle amid fears of the recession. The same drowns the Old Continent’s currency versus major counterpart of late. On the contrary, the US data and Federal Reserve (Fed) talks have been impressive to the US Dollar, along with the upbeat Treasury bond yields.

On Tuesday, Eurozone Producer Price Index (PPI) for July deteriorated to -0.5% MoM and -7.6% YoY from -0.4% and -3.4% respective priors.

Further, the European Central Bank’s (ECB) monthly survey of consumer expectations for inflation hints at no change in the next 12-month figure of 3.4% in July but an upward revision to the three-year ahead version to 2.4% for the said month versus 2.3% expected in June. The ECB survey details also said that the expectations for economic growth over the next 12 months became slightly more negative, however the expected unemployment rate in 12 months' time was unchanged.

Earlier on Tuesday, Irish Business Publication, The Currency, released ECB Chief Economist Phillip Lane’s August 31 interview where he praised softening in the August inflation data. The policymaker, however, cited the need for continuation of such statistics to push back the hawks.

Earlier in the week, ECB President Christine Lagarde highlighted the need for central banks to keep the inflation expectations firmly anchored. On the same line, Deutsche Bundesbank President and the ECB Council Member Joachim Nagel also advocated for price stability but hesitated providing further details.

On the other hand, US Factory Orders for July dropped to the lowest since mid-2020 while posting -2.1% MoM figures versus -0.1% expectations and 2.3% previous growth. However, the orders excluding transport rose 0.8% MoM, Shipments of goods stayed firmer and inventories marked the first increase in three months.

That said, Fed Governor Christopher Waller signaled during a CNBC interview that data will drive whether the Fed needs to lift rates again, as well as confirm whether the Fed is done raising rates. The policymaker also added, "Data is looking good for soft landing scenario,” which in turn allowed the US Dollar to remain firmer.

Amid these plays, US 10-year Treasury bond yields rose eight basis points (bps) to 4.26% while Wall Street benchmarks closed with minor losses. It’s worth noting that the US Dollar Index (DXY) rose to the highest level since mid-March the previous day.

Moving on, German Factory Orders and Eurozone Retail Sales for July will offer immediate directions to the EUR/USD pair ahead of the US ISM Services PMI for August, expected 52.6 versus 52.7 prior, as well as the final readings of the US S&P Global PMIs for the said month.

Also read: ISM Services PMI Preview: Strength may spook markets, boosting US Dollar

Technical analysis

A daily closing below the ascending support line stretched from March, now immediate resistance near 1.0790, directs the EUR/USD bears toward June’s low of 1.0635.