EURUSD H1 23-06

The French economy already surprisingly contracted in Q1 and the latest slump in June's PMI readings won't provide much comfort that recession risks are just around the corner in Europe.

The readings today are relatively weak and continues to highlight softer demand conditions as inflation pressures grip the economy, adding to the ongoing issues on the supply side.

The euro has fallen from 1.0565 to a session low of 1.0535 currently, nearing its 100-hour moving average (red line) at 1.0528. The challenge for the currency now is how will this narrative i.e. economy running into the ground much quicker than anticipated, fit with the ECB's resolve to tighten policy and raise interest rates further in the months ahead.

If the trend keeps up, we could be staring at stronger recession indicators well before Q4 or early next year. Will ECB policymakers be able to tolerate that and keep hiking rates? That will be a key question that needs answering but it won't give the euro too much comfort as the market tries to figure it out - especially if economic data continues to deteriorate in the months ahead.