Bears step in and force a breach of 1.0500

• EUR/USD debilitates and breaks below the 1.0500 mark.
• EMU, Germany Flash PMIs surprised to the downside.
• Powell, Initial Claims next of note across the pond.

The single currency loses the grip and motivates EUR/USD to breaches the key support at 1.0500 the figure.

EUR/USD: Weekly upside capped above 1.0600

After three consecutive daily advances, EUR/USD now shows some signs of weakness and revisits the sub-1.0500 region, as concerns over a probable economic slowdown in the region have been exacerbated following the poor results from flash PMIs for the current month in the core Euroland.

Indeed, preliminary figures expect the Manufacturing PMI to retreat to 51.0 in France, 52.0 in Germany and 52.0 in the broader euro area. Regarding the Services gauge, it is seen dropping to 54.4 in France, 52.4 in Germany and 52.8 in the euro bloc.

In the meantime, market participants continue to digest the recent testimony by Chief Powell before the US Senate, where he suggested that further tightening could cause recession despite the probability of such scenario is not elevated right now. Powell also kept a 100 bps rate raise on the table.

Later in the domestic calendar ECB Enria is due to speak. In the NA session, Initial Claims and the EIA’s report are due along with another testimony by Chair Powell.

What to look for around EUR

Recession fears following the release of flash PMIs in the core euro area sparked a moderate sell-off in the risk-linked galaxy and forced EUR/USD to once again break below the 1.0500 support.

In the meantime, the single currency continues to closely follow any developments surrounding the ECB and its plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: ECB General Council Meeting, Flash EMU, Germany PMIs (Thursday) – Germany IFO Business Climate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is down 0.64% at 1.0496 and faces the next support at 1.0358 (monthly low June 15) followed by 1.0348 (2022 low May 13) and finally 1.0300 (psychological level). On the other hand, a breakout of 1.0605 (weekly high June 22) would target 1.0629 (55-day SMA) en route to 1.0786 (monthly high May 30).