EUR/USD and a Return to Parity in the Hands of the ECB Policy Minutes

It was a busy start to the European session for the EUR/USD. Following the disappointing PMI numbers from Monday and Wednesday, the German economy was back in the spotlight.

German factory orders slumped by 2.4% in August, reversing a 1.9% increase in July. Economists forecast a 0.7% fall.

According to Destatis,

• Excluding large-scale orders, orders increased by 0.8%.

• Domestic orders slid by 3.4%, with foreign orders down by 1.7%.

• Producers of capital goods saw a 2.4% fall in orders, with intermediate goods orders sliding by 4.2%. However, consumer goods orders surged by 5.2%.

• Year-over-year, factory orders were down 4.1% compared with 11.0% in July.

German factory order numbers aligned with the September manufacturing PMI survey. Falling for a sixth consecutive month, manufacturers reported the most marked fall in new orders since May 2020.

However, ECB chatter continues to point to a 75-basis point rate hike despite Germanys economic woes. Germany ranked last on the Composite PMI table, with a 28-month low composite PMI of 45.7.

Eurozone retail sales figures also drew interest, with the markets looking for an impact assessment of inflation on consumer spending.

In August, retail sales fell by 0.3%, following a 0.4% decline in July. Economists forecast a 0.4% fall.

According to Eurostat,

• Food, drinks, & tobacco sales declined by 0.8%, while non-food product sales increased by 0.2% and automotive fuels by 3.2%.

• The Netherlands (-2.2%), Germany (-1.3%), and Malta (-1.1%) registered the largest monthly declines.

• Compared with August 2021, retail sales fell by 2.0% versus a 1.2% decline in July.

Later today, the ECB monetary policy meeting minutes will provide the EUR with further direction. The markets will eye reasons for the ECB to hold off on a 75-basis point hike. However, no ECB members are due to speak today to change the narrative.

EUR/USD Price Action

At the time of writing, the EUR was up 0.11% to $0.98913.

A mixed start to the day saw the EUR fall to an early low of $0.98723 before striking a high of $0.99265. However, the EUR fell back to a post-stat low of $0.98752 before finding support.

Technical Indicators

The EUR/USD needs to avoid the $0.9903 pivot to target the First Major Resistance Level (R1) at $0.9972 and the Wednesday high of $0.99949. Following todays stats, the ECB minutes need to deliver a hawkish message to support a return to parity.

In the case of an extended rally, the bulls will take a run at the Second Major Resistance Level (R2) at $1.0063. However, FOMC member chatter will also need to deliver a less hawkish spin to support a run at $1.0050. The Third Major Resistance Level (R3) sits at $1.0224.

A fall through the pivot would give the bears a run at the First Major Support Level (S1) at $0.9812. However, barring a market flight to safety, the EUR/USD pair would likely avoid sub-$0.98 and the Second Major Support Level (S2) at $0.9743.

The Third Major Support Level (S3) sits at $0.9583.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 100-day EMA, currently at $0.98541. The 50-day EMA closed in on the 100-day EMA, with the 100-day EMA narrowing to the 200-day EMA, delivering bullish signals.

A bullish cross of the 50-day EMA through the 100-day EMA would support a breakout from R1 ($0.9972) to target parity and R2 ($1.0063). However, a EUR/USD fall through the 100-day EMA ($0.98541) and the 50-day EMA ($0.98377 would give the bears a run at S1 ($0.9812). The 200-day EMA sits at $0.99246.

The US Session

It is a quieter day ahead on the US economic calendar. The US labor market is in the spotlight, with the weekly jobless claims in focus.

Another fall in initial jobless claims would support a more hawkish Fed move in November. However, it will all boil down to the nonfarm payrolls on Friday. If the ADP numbers from Wednesday are a gauge, the Fed is unlikely to take the foot off the gas before the end of the year.