On Friday the Eurozone Global Composite PMI print for July dropped to 49.4 from 51.0. This was below the minimum expectations for a print of 50. On top of this, the German PMI composite fell sharply to 48 from a minimum expected reading of 49.5.

The prospects of a coming eurozone recession continue to mount and this gives the EUR a bearish bias. This bearish bias has been compounded by the last ECB meeting.

The ECB’s last meeting

The ECB delivered a surprise 50 bps rate hike last week, but the growth concerns are more focused on the eurozone than an extra rate hike. This was particularly due to the fact that the ECB made it clear that the extra hike was to do with front-loading the hikes not raising expectations of a higher terminal rate. The ECB is facing eurozone headline inflation of 8.1% and core inflation of 3.8%. It is determined to act to get it under control which is why the hike came in at 50bps. Yet, many analysts project that the ECB will hit the brakes on hiking rates once slowing growth really bites the eurozone.

Furthermore, the announcement of the new anti-fragmentation tool (Transmission Protection Instrument) did not lift the euro as the eligibility criteria still may make it hard for some of the more vulnerable eurozone countries to qualify. Since the meeting, the BTP/Bund spread has kept rising, so fragmentation risk is still present.

EURJPY sell bias

The JPY tends to strengthen around the summer months on a seasonal basis, so there is some scope for EURJPY selling from decent levels at market. See the chart at the top for the stop and target levels marked. However, any significant change in the outlook for either Japan’s monetary policy or the eurozone, as well as the overall risk tone, can impact this view.