EUR/USD and a Run at Parity in the Hands of the Prelim October PMIs

It is a busy session for the EUR/USD, with prelim October private sector PMIs for France, Germany, and the Eurozone in focus.

With the markets expecting a Eurozone recession, better-than-expected numbers could give the EUR a sizeable boost. The market focus will likely extend beyond the headline numbers. New orders, input and output price pressures, and supply chain details will also draw interest.

Following Fed chatter of taking the foot off the gas as early as December, upbeat PMI numbers could also converge monetary policy expectations from the ECB and the Fed.

However, on the flip side, weak numbers would dilute the effects of Fridays less hawkish FOMC chatter. While the Fed is looking to avoid a hard landing, the ECB may have to navigate weaker economic conditions in the months ahead.

Therefore, we expect increased EUR/USD sensitivity to today‘s numbers as the markets look ahead to Thursday’s ECB monetary policy decision. The markets have priced in a 75-basis point rate hike. However, the ECB has remained coy about policy intentions beyond Thursday. The PMI numbers could give an idea of what to expect.

On the ECB calendar, no members are due to deliver speeches, leaving ECB member chatter with the media to influence.

Ahead of the PMI numbers, economic data from China will influence market risk sentiment. Q3 GDP and September retail sales, industrial production, and fixed asset investments will be in focus.

Going into the Asian session, the EUR/USD targeted a return to $0.99 as the markets responded to easing bets of a 75-basis point Fed rate hike in December.

EUR/USD Price Action

At the time of writing, the EUR was up 0.28% to $0.98844. A bullish start to the day saw the EUR/USD rise from an early low of $0.98641 to a high of $0.98991 before easing back.

The First Major Resistance Level (R1) at $0.9886 pegged the EUR back.

Technical Indicators

The EUR/USD needs to avoid the $0.9840 pivot to retarget the First Major Resistance Level (R1) at $0.9886 and $0.99. Following less hawkish FOMC member chatter on Friday, positive PMI numbers would support a breakout session.

In the case of an extended rally, the bulls will likely take a run at the Second Major Resistance Level (R2) at $0.9915 and $0.9950. The Third Major Resistance Level (R3) sits at $0.9989.

A fall through the pivot would bring the First Major Support Level (S1) at $0.9811 into play. In the case of an extended sell-off, the EUR/USD pair would likely test the Second Major Support Level (S2) at $0.9766 and support at $0.9750.

The third Major Support Level (S3) sits at $0.9691.

Looking at the EMAs and the 4-hourly chart, the EMAs send a bullish signal. The EUR/USD sits above the 200-day EMA ($0.98479). 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.

Avoiding the 200-day EMA ($0.98479) would support a move back through R1 ($0.9886) to target $0.99 and R2 ($0.9915). However, a fall through the 200-day EMA ($0.98479) would bring S1 ($0.9811) and the 100-day EMA ($0.97960) into play.

The US Session

It is a relatively quiet day ahead on the US economic calendar, with US private sector PMI numbers in focus. We expect the Services PMI to have more influence. The markets will likely look beyond the headline figure, with new orders, employment, and inflation likely focal points.

Impressive stats could lead the markets to raise bets of a more hawkish Fed move in December.

However, no FOMC members will speak to guide the markets following todays stats. The FOMC blackout period started on Saturday and will extend until November 3.

Going into the Monday session, the FedWatch Tool had the probability of November and December rate hikes at 87.5% and 48.7%, respectively. One week ago, the likelihood of a 75-basis point hike in December stood at 69.8%.