European stocks tumbled on Thursday after a short-lived relief rally as investors shifted their focus back to recession risks. Adding to market worries, new economic data from the Eurozone and the United States came in worse than expected. In particular, the Eurozone Manufacturing PMI arrived at 52.0 in June versus 53.9 expectations and 54.6 last, thus hitting a two-year low. Similar data from Germany and France disappointed as well.
In the US, weekly initial jobless claims declined less than expected. As risk-off deals are back in the game, the safe-haven dollar retains a bullish tone today, albeit lacking the directional impetus as the New York session begins. This is partly due to the continuing slide in the US Treasury yields. Against this backdrop, the USD/JPY pair slumped below 135.00, losing more than 1% on the day.
The nearest bearish target is now at 134.50. If the pair fails to hold above this zone, deeper losses could be expected within the current local correction from 24-year highs. Elsewhere, the euro remains on the defensive after a slight bounce from daily lows seen below 1.0500. EUR/USD continues to face resistance represented by the descending 20-DMA that capped gains on Wednesday.
Dismal data out of the Eurozone triggered fresh concerns about the outlook for the region’s economy at a time when the ECB is getting more hawkish on its monetary tightening path. In its Economic Bulletin, the central bank underscored challenges to the economy from higher inflation, which implies that the regulator may have to take more aggressive steps to fight rising consumer prices.
However, the shared currency may fail to capitalize on the ECB policy should European recession risks continue to grow in the coming weeks and months.