<ul><li>Probability of recession is increasing</li><li>Recession would mitigate inflation pressures</li><li>We may have to adjust monetary policy stance further</li></ul><p style=““ class=“text-align-justify“>It’s not much and it isn’t coming from too prominent a policymaker within the central bank but this is something fresh at least. The ECB has been adamant that it will keep up the good fight against inflation but as a recession looms just around the corner, the window to keep tightening is surely closing in on the central bank.</p>

This article was written by Justin Low at www.forexlive.com.

<p>Headlines:</p><ul><li><a target=“_blank“ href=“https://www.forexlive.com/news/europe-pmi-takeaway-it-could-have-been-worse-20220823/“>Europe PMI takeaway: It could have been worse</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/eurusd-continues-to-slug-along-below-parity-20220823/“>EUR/USD continues to slug along below parity</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/eurozone-august-flash-services-pmi-502-vs-505-expected-20220823/“>Eurozone August flash services PMI 50.2 vs 50.5 expected</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/germany-august-flash-manufacturing-pmi-498-vs-482-expected-20220823/“>Germany August flash manufacturing PMI 49.8 vs 48.2 expected</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/france-august-flash-services-pmi-510-vs-530-expected-20220823/“>France August flash services PMI 51.0 vs 53.0 expected</a></li><li><a target=“_blank“ href=“https://www.forexlive.com/news/uk-august-flash-services-pmi-525-vs-520-expected-20220823/“>UK August flash services PMI 52.5 vs 52.0 expected</a></li></ul><p>Markets:</p><ul><li>CAD leads, CHF lags on the day</li><li>European equities slightly lower; S&P 500 futures up 0.1%</li><li>US 10-year yields down 0.3 bps to 3.015%</li><li>Gold up 0.1% to $1,738.08</li><li>WTI crude up 1.8% to $91.98</li><li>Bitcoin up 1.6% to $21,457</li></ul><p style=““ class=“text-align-justify“>The euro continues to keep softer in the new week, with the latest PMI readings for August helping to see the single currency sustain below parity against the dollar. The were some slightly better readings than estimated but overall, it still points to an added slowdown and contraction in Europe ahead of the winter months.</p><p style=““ class=“text-align-justify“>In the case of the euro area, a contraction in Q3 is a given now while the UK is set to see economic conditions stagnate.</p><p style=““ class=“text-align-justify“>EUR/USD was slightly softer initially as risk tones were also on the defensive. The pair was down to 0.9900 before bouncing back up to 0.9930 and then touching a high of 0.9950 before retreating back slightly lower now to 0.9920-30 levels.</p><p style=““ class=“text-align-justify“>GBP/USD also saw similar price action as the dollar swung around a bit amid the shift in the risk mood, with US futures turning a 0.5% drop to be up 0.1% currently. Cable was down to a low of 1.1718 before holding near flat levels now at 1.1765.</p><p style=““ class=“text-align-justify“>Elsewhere, commodity currencies are seen steadier though the aussie did slip to a one-month low of 0.6857 before keeping near flat now at 0.6875 on the day.</p><p style=““ class=“text-align-justify“>Risk tones and dollar sentiment will continue to dictate proceedings but all else being equal, the path of least resistance is still for the dollar to inch higher (or at least keep in a favourable position) given the technicals for the time being.</p>

This article was written by Justin Low at www.forexlive.com.

<p style=““ class=“text-align-justify“>There was a bit of a brief jump earlier from 0.9905 to 0.9930 after the PMI data before the dollar seeing gains pared saw the pair move up to near session highs around 0.9950. The momentum has quickly dissipated though as sellers remain in control below parity. The hold below the 14 July low at 0.9952 also keeps the bias tilted more to the downside on the day.</p><p style=““ class=“text-align-justify“>As much as there were some parts of the PMI data earlier that were not as bad as feared, it was still another set of economic releases that puts the euro area closer towards a recession. There might be some bright spots in the sense that inflation pressures were a little better and supply chain issues were seen less prominent, but we are seeing labour market conditions start to take a hit and economic activity slowing down further in August.</p><p style=““ class=“text-align-justify“>On the balance of things, there is still little to no reason to be optimistic about the euro in my view.</p><p style=““ class=“text-align-justify“>The hold below parity for EUR/USD will put the focus towards 0.9800 and 0.9500 as the next key technical targets. The slight improvement in the risk mood on the day has helped to slow things down as the bullish dollar sentiment hits pause but there hasn’t been a significant shift to suggest a push back above parity for the pair.</p>

This article was written by Justin Low at www.forexlive.com.