EUR/USD Prediction as the U.S Enters Recession and EU Confidence Fades

EUR/USD Prediction as the U.S Enters Recession and EU Confidence Fades
  • EUR/USD declined sharply following the recent U.S GDP data.
  • The economy dipped into recession in Q2 as inflation soared.
  • Europe’s consumer confidence plummeted to ATLs (all-time lows).

EUR/USD price note a sharp decline on Thursday following the U.S economic data, which highlighted that the economy dipped into recession in Q2. The pair declined to the 1.0110 low, massively lower than the 1.0276 high of last week.

U.S Recession Arrives

The United States economy dipped into recession in Q2 as high inflation dented consumer spending. Data from the statistics agency confirmed the economy recorded a 0.9% contraction in Q2 after losing 1.6% in the first quarter.

The agency cited trade deficit and soaring inflation behind the contraction. The latest data indicated that June’s headline inflation zoomed to 9.1%, representing the highest surge in more than 40 years. Meanwhile, the closely followed PCE (personal consumption expenditure) plunged from 5.2% to 4.2% during the second quarter.

The weak United States GDP arrived one day after the Fed executed the massive 75 basis point hike, citing escalated inflation. However, the increase matched what experts expected. Jerome Powell, who wasn’t correct about inflation, suggested that the economy hasn’t dipped into recession.

The EU economy isn’t performing well either. Destatis data indicated that German inflation grew by 7.5% this month (July), whereas the harmonized rate increased to 8.5% from 8.2%. Meanwhile, the two figures were higher than what experts expected.

Nevertheless, consumer and business confidence plunged to a record low in Europe. Data from the European Commission showed consumer confidence plummeted to the lows of -27 from -23/8. Industrial and services sentiment also dipped to 3.5 and 10.7, respectively. Thus, the ECB will face challenges tightening amidst such conditions.

EUR/USD Prediction

According to the 4hr chart, EUR/USD declined to 1.0110 following the recent U.S GDP data. The pair stays inside a horizontal channel and briefly beneath the 25 and 50-day moving averages. The RSI (Relative Strength Index) continued to retreat as the price hovers slightly beneath the Ichimoku cloud.

Thus, analysts expect EUR/USD to extend its sell-off in the short term, with sellers eyeing the 1.0000 parity level. Meanwhile, a move past the 1.0200 resistance will cancel the bearish narrative.