Title: EUR/USD builds a cushion around 0.9940, downside looks likely ahead of German/US PMIs

August 23, 2022 12:14 AM ET

By: AnalysisWatch

The EUR/USD pair is trying to build a base around 0.9940 after a vertical decline on Monday. The major was auctioned in a narrow range of 0.9933-0.9950 during the Asian session, but is likely to break lower on lower expectations for German PMI data. On Monday, the asset recorded severe losses after losing the magic number of 1.0000.

According to preliminary estimates, the S&P Global/BME German Manufacturing PMI will come in at 48.3, which is lower than the previous release of 49.3. Similarly, the services PMI is expected to come in at 49, down from 49.7 previously. It should be noted that Germany is a key member of the European Union (EU) and a drop in the German PMI will have a significant impact on the common currency.

In addition, investors should be aware that the Manufacturing PMI has been in a consecutive decline since February of this year. A further decline in economic data would strengthen the chances of a recession in Germany. In addition, Russia will halt natural gas deliveries to Europe for three days in August to perform unscheduled maintenance work under the Baltic Sea on its way to Germany. The unexpected reduction in natural gas supplies to Germany through the Nord Stream 1 pipeline will accelerate the imbalance in the energy supply and demand mechanism and may cause the common currency to fall.

On the dollar front, the U.S. Dollar Index (DXY) is posting a moderate performance during the Asian session. The asset is expected to remain sideways as it awaits US PMI data. The S&P Global Manufacturing PMI is estimated to come in at 51.5, which is lower than the previous print of 52.2. On the other hand, the service PMI will improve significantly to 49.1 from 47.3 previously.