EUR/USD: worrying economic indicators in the Euro zone

Breaking $1.0350, the pair continued to characterise the drying up of risk appetite as the risks of the Eurozone and the US entering recession took hold, pointing to a period of stagflation, a "dirty word" for economists. The latest barometer of activity in the monetary union, published this morning, supports this view. The final services PMI for June came out at 53 points, barely above the initial estimates, leaving a tenuous margin with the 50 points that separates, by construction, an expansion from a contraction in the sector under consideration. We therefore have the composite data (including industry), which came in at 51.9 (54.8 in May), the lowest in 15 months.

Chris Williams, Chief Business Economist at S&P Global Market Intelligence comments on the latest PMI figures: "The sharp slowdown in activity growth seen in June in the Eurozone raises the risk of a contraction in the region's economy in the third quarter. The June PMI is in line with a quarterly increase in GDP of only 0.2%, while the survey's forward-looking indicators, such as the new orders and business outlook indices, are also trending downwards, pointing to a decline in activity in the coming months. The manufacturing sector has already moved into contraction territory, with output falling for the first time in two years in June, while service sector activity has slowed sharply amid soaring inflation and a consequent rise in the cost of living".

"The latest PMI data therefore highlights a strong increase in the risks of economic contraction in the euro zone, even though inflationary pressures are easing but remain very marked," he adds.

To make matters worse for the single currency against the safe-haven dollar, in Monday's statistics, the Sentix index of investor confidence in the Eurozone deteriorated further, from -15.8 to -26.4, missing expectations. And the producer price index in the Eurozone came in at +0.7% in May, at a monthly rate.

Right now, the pair is trading at $1.0299.

KEY CHART ELEMENTS

The spot is in the process of breaking a fragile neckline of a chartist pattern, which sends a clear bearish message. For the time being, we are keeping the objective of reaching the perfect parity of one Euro for one Dollar, with increasing volatility.

MEDIUM-TERM FORECAST

Given the key chart factors we have mentioned, our medium-term view on the Euro Dollar (EURUSD) is negative.

Our entry point is $1.0297. Our bearish scenario price target is $1.0001. In order to preserve the capital invested, we advise you to position a protective stop at $1.0401.

The expected return on this Forex strategy is 296 pips and the risk of loss is 104 pips.