Euro steady higher despite soft German, eurozone data, US Services PMI next

• German factory orders slide by 11.7%
• Eurozone retail sales decline by 0.2%
• EUR/USD inches higher

The euro has steadied on Wednesday, following sharp losses a day earlier. In the European session, EUR/USD is trading at 1.0731, up 0.09%.

The euro can’t seem to find its footing and has fallen about 200 basis points since August 31st. On Tuesday, the euro dropped to a low of 1.0706, its lowest level since early June.

German factory orders, eurozone retail sales decline

The eurozone economy is in trouble and Germany, the largest country in the bloc, has also seen its powerhouse economy deteriorate. The manufacturing sector has been mired in decline for months, and the services sector, which had shown prolonged expansion and has carried the eurozone and German economies on its back, fell into contraction territory in August.

The news didn’t get any better on Wednesday, as German factory orders and eurozone retail sales headed lower. German factory orders plunged by 11.7% m/m in July, compared to a consensus of -4.0%. This followed an upwardly revised gain of 7.6% in June. This was the steepest decline since April 2020.

In the eurozone, retail sales decreased by 0.2% m/m in July, down from an upwardly revised 0.2% gain in June and below the consensus of -0.1%. On a yearly basis, retail sales was unchanged in July at -1.0%, slightly better than the consensus of -1.2%. Retail sales have not posted a gain in ten months, pointing to prolonged weakness in consumer spending.

The ECB meets next week and ECB President Lagarde hasn’t shown her cards as to whether the central bank will hike or hold. The host of soft data out of Germany and the eurozone is providing support for the doves, who are concerned about a recession. The hawks remain fixated on pushing inflation closer to the 2% target, even at the price of a recession. The final decision could go right to the wire – currently, the odds of a quarter-point hike stand at 32% and a hold at 68%.

In the US, it’s a relatively quiet week on the data calendar, with only two key events – ISM Services PMI later today for August and unemployment claims on Thursday. The services sector has been in expansion over the past three years with just one exception, but growth has been modest for much of 2023. The consensus for the August PMI stands at 52.5, close to the July reading of 52.7 points. The 50.0 level separates contraction from expansion.

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EUR/USD Technical

• EUR/USD is testing support at 1.0716. Below, there is support at 1.0658
• There is resistance at 1.0831 and 1.0889

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