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- EUR/USD reversed modest intraday losses on Thursday amid the emergence of fresh USD selling.
- A technical recession in the US reaffirmed a gradual Fed rate hike path and weighed on the USD.
- The European gas crisis acted as a headwind for the euro and kept a lid on any meaningful upside.
- Investors now look forward to important Eurozone macro data and the US PCE for a fresh impetus.
The EUR/USD pair witnessed good two-way price moves on Thursday and the intraday volatility was sponsored by a combination of factors. The shared currency was weighed down by worries that a halt of gas flows from Russia could trigger an energy crisis in the Eurozone. In fact, the Russian state-controlled energy giant Gazprom said on Wednesday that natural gas deliveries to Germany via the Nord Stream 1 pipeline have been cut further to 20% of capacity. The pipeline operator had announced the first reduction on Monday to 40% citing a missing turbine. Apart from this, political instability in Italy – ahead of elections in September – added to concerns about the regions economic outlook and further undermined the euro. That said, the emergence of fresh US dollar selling assisted the pair to recover intraday losses and settle nearly unchanged for the day.
The USD struggled to capitalize on its modest intraday gains and met with a fresh supply following the disappointing release of the Advance US Q2 GDP report. According to the first estimate released by the US Bureau of Economic Analysis, the world's largest economy contracted by 0.9% annualized pace during the April-June period. The reading was worse than the 0.4% rise estimated and comes on the back of a 1.6% decline in the previous quarter, confirming a technical recession. Against the backdrop of Wednesday's less hawkish FOMC, a shrinking US economy reinforced expectations that the Fed would not raise interest rates as aggressively as previously expected. This was evident from a steep decline in the US Treasury bond yields. This, along with a strong follow-through rally in the US equity markets, exerted additional downward pressure on the safe-haven greenback.
The USD selling bias remains unabated through the Asian session on Friday and continued lending support to the EUR/USD pair. Spot prices, however, lack bullish conviction, warranting some caution before positioning for any further appreciating move. Market participants now look forward to a rather busy economic docket, featuring the release of the preliminary estimates of the second quarter GDP from the Eurozone, Germany, France, Italy and Spain. Apart from this, the flash version of the Eurozone consumer inflation figures would influence the common currency. Later during the early North American session, traders would take cues from the US Personal Consumption Expenditures (PCE report) – the Fed preferred inflation gauge. A flurry of important macro data should infuse a fresh bout of volatility in the markets and provide a fresh impetus on the last day of the week.
Technical Outlook
From a technical perspective, spot prices, so far, have struggled to confirm a breakout through the top end of a short-term descending trend channel. This makes it prudent to wait for sustained strength beyond the 38.2% Fibonacci retracement level of the 1.0787-0.9952 downfall, around the 1.0270-1.0280 region, before placing fresh bullish bets.
Some follow-through buying beyond the 1.0300 mark would be seen as a fresh trigger for bulls and pave the way for additional gains. The EUR/USD pair could then surpass an intermediate resistance near the 1.0365-1.0370 region, or the 50% Fibo. level, and aim to reclaim the 1.0400 mark. The momentum could further get extended towards the 50-day SMA resistance, currently near the 1.0425 region, en-route the 61.8% Fibo. level, around the 1.0470 zone.
On the flip side, the 1.0100 psychological mark, nearing the weekly low, now seems to have emerged as immediate strong support. A convincing break below would shift the bias back in favour of bearish traders and make the EUR/USD pair vulnerable. Spot prices could then accelerate the fall towards retesting the parity mark before eventually dropping to challenge the YTD low, around the 0.9950 region touched earlier this month.
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