Euro weighed down by growing recession risk, all eyes on Fed

EURUSD extends steep drop into second day and fell to one week low, deflated by weak economic data and higher dollar.

The single currency came under pressure after disappointing EU GDP data which showed that bloc’s economy contracted by 0.1% in the third quarter and boosted fears of recession.

Downbeat GDP numbers present a cost of a sharp decline of inflation which rose by the slowest pace in over two years in October (2.9% vs 3.1% f/c) and suggest that the ECB is likely done with raising interest rates.

Investors remain highly concerned about the further negative impact of ECB’s unprecedented action in which the central bank pushed interest rates to record highs in 10 consecutive rate hikes.

Additional pressure on Euro came from disappointing China’s manufacturing PMI which fell below 50 threshold and warn that economic recovery is losing traction, which also contributes to recession fears in the Eurozone.

The impact of US labor data (ADP Oct 113K vs 150K f/c / JOLTS Sep 9.55M vs 9.25M f/c) and manufacturing PMI (Oct 46.7 vs 49.0 f/c) is still to be seen, as markets await Fed rate decision, with more focus on signals about central bank’s next steps, as unchanged policy at the end of November’s meeting is widely expected.

Technical picture on daily chart is mixed, as negative signals from Tuesday’s bull-trap which left bearish daily candle with long upper shadow and near-term action being weighed by falling thick daily cloud, are partially offset fresh bullish momentum (14-d momentum indicator is heading north and broke into positive territory).

Expect further bearish signal on firm break of 1.05 zone, which would risk retest of 2023 low at 1.0448), while lift above cracked Fibo 23.6% and 10 DMA (1.0565/87) would ease immediate downside pressure, though sustained break above 1.0683 (Fibo 38.2% of 1.0945/1.0448) will be required to revive bulls.

Res: 1.0587; 1.0638; 1.0674; 1.0696
Sup: 1.0521; 1.0495; 1.0448; 1.0400