EURUSD Remains Below Parity, No Reson to Rally
23 August 2022
The EURUSD pair traded firmly below the psychological level of parity on Tuesday as there seems to be no fundamental reason to buy the euro right now.
In August, the Eurozone Manufacturing purchasing managers index (PMI) came in at 49.7, above forecasts of 49.0 and the previous reading of 49.8. However, the index dropped to a 26-month low.
The bloc's services PMI fell significantly in August, from 51.2 in July to 50.2, below the predicted 50.5. In addition, 17-month lows were hit by the indicator.
In August, the SP Global Eurozone PMI Composite dropped to 49.2 from a predicted 49.0 and a prior reading of 49.9. It was the gauge's lowest reading in 18 months.
"Cost of living pressures mean that the recovery in the service sector following the lifting of pandemic restrictions has ebbed away, while manufacturing remained mired in contraction in August, seeing another record accumulation of stocks of finished goods as firms were unable to shift products in a falling demand environment." Chris Williamson, Chief Business Economist at SP Global, commented after the release.
Meanwhile, According to Reuters, Fabio Panetta, an executive board member of the European Central Bank (ECB), suggested on Tuesday that they may need to modify their monetary policy further.
In addition to stating that a recession would lessen inflationary pressures, Panetta admitted that the likelihood of a recession in the eurozone was rising.
The euro still trades within a large bearish channel, with the next target at the lower bound of the channel near 0.9750. Once that level is reached, we might see some consolidation or a relief rally.
On the other hand, the single currency must jump above 1.02 to cancel the immediate selling pressure.