EUR/USD: June PMI indices completely missed their target

The EUR maintained a marked bearish bias, both in the short and medium term against the USD, against the backdrop of recurring fears of the US economy entering recession in 2023, a scenario that weighs heavily on risk appetite. The resolutely offensive tone of the major central banks to combat galloping inflation, against a backdrop of indecision as to the Ukraine war outcome, is adding to an already cool atmosphere.

The euro is suffering from a series of activity indicators (the famous PMI, purchasing managers' surveys), all of which are off target... In synthetic data for the whole of the Euro Zone, the manufacturing PMI (first estimate) was 51.9 in June, coming dangerously close to the 50-point mark which, by construction, separates a contraction from an expansion in the sector in question. For services, the score was 52.9, compared to the 55.7 expected.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, adds: "Eurozone economic growth is showing signs of slowing in June, as the impact of the thaw in demand built up during periods of containment is already beginning to fade, driven by the sharp rise in the cost of living and the fall in household and business confidence [...]. Inflation rates have indeed remained at pre-pandemic levels, and the latest survey results point to a worrying acceleration in cost increases in the services sector. However, the recent moderation in demand already appears to be supporting a slowdown in the rise in prices of manufactured goods, a trend that suggests that the inflationary peak will soon be over."

In the US, the central bank's battle against inflation risks causing a recession in the world's largest economy, as Fed boss Powell half-heartedly acknowledged.

Right now, the pair is trading at $1.0541.

KEY CHART ELEMENTS
The failure to touch the 50-day moving average (in orange) is now in place, and the downside targets towards $1.0350 and $1.0250 are locked in. A close on the weekly lows in week 23 reinforced the bearish message. Further contact with the aforementioned trendline would further strengthen the quality of the entry point. This is exactly what happened on Wednesday, on a convergence zone of two remarkable moving averages.

MEDIUM-TERM FORECAST
Given the key chart factors we have mentioned, our medium-term view on the EUR/USD is negative.

Our entry point is $1.0503. Our bearish scenario price target is $1.0251. In order to preserve the capital invested, we advise you to place a protective stop at $1.0607.

The expected return on this strategy is 252 pips and the risk of loss is 104 pips.