Euro regains the smile and retargets the 1.0900 hurdle

• Euro so far reverses part of the recent weakness vs. the US Dollar.
• Stocks in Europe starts the week in a strong fashion.
• EUR/USD bounces of multi-week lows near 1.0840 (August 18).
• The USD Index (DXY) comes under pressure and revisits 103.30.
• Producer Prices in Germany surprised to the downside in July.
• The US docket is empty at the beginning of the week.

The Euro (EUR) leaves behind part of the multi-day decline against the US Dollar (USD) on Monday and motivates EUR/USD to shift its focus to the immediate key barrier at 1.0900 the figure.

In the meantime, the Greenback extends the corrective knee-jerk after hitting new peaks for the month of August near 103.70 last Friday and relegates the USD Index (DXY) to the 103.30 region despite the move higher in US yields early in the European trading hours.

Looking at the broader context of monetary policy, the discussion around the Federal Reserve's stance of maintaining a tighter policy for an extended period seems to have been revived. This is in response to the resilience displayed by the US economy, despite some easing in the labour market and lower inflation readings in recent months.

Within the European Central Bank's realm (ECB), internal disagreements among its Council members regarding the continuation of tightening measures after the summer period are causing renewed weakness that is impacting the Euro negatively.

Moving forward, markets are expected to maintain a cautious approach in light of the Jackson Hole Symposium and Chief Jerome Powell’s speech in the second half of the week.

On another front, speculative net longs in the EUR climbed to two-week highs in the week ended August 15, according to the latest CFTC report.

Data-wise, in Germany, Producer Prices contracted at a monthly 1.1% in July and 6.0% over the last twelve months. The period under scrutiny saw EUR/USD come under heavy pressure amidst the multi-week rally in the Greenback helped by stronger-than-expected results in the US docket.

Daily digest market movers: Euro generates some upside traction near 1.0900

• The EUR picks up pace vs. USD and approaches 1.0900.
• The PBoC reduced by 10 bps the 1-Year Loan Prime Rate to 3.45%.
• Investors will closely follow the developments from the Jackson Hole event.
• US 10-year/30-year yields resume the uptrend to multi-year highs.
• Fed’s tighter-for-longer narrative remains well in place.
• The Fed is likely to maintain rates at current levels until Q1 2024.

Technical Analysis: Euro risks further decline near term

EUR/USD manages to stage a decent rebound with the immediate target at the 1.0900 barrier at the beginning of a new trading week. Despite the current bounce, the pair is still seen under pressure.

In case of further losses, EUR/USD could retest the August low of 1.0844 (August 18) ahead of the July low of 1.0833 (July 6). The breakdown of the latter exposes the significant 200-day SMA at 1.0792 ahead of the May low of 1.0635 (May 31). Deeper down, there are additional support levels at the March low of 1.0516 (March 15) and the 2023 low at 1.0481 (January 6).

Occasional bullish attempts, in the meantime, are expected to meet initial hurdle at the August high at 1.1064 (August 10) prior to the weekly top at 1.1149 (July 27). If the pair clears the latter, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 (July 18). Once this region is surpassed, significant resistance levels become less prominent until the 2022 high at 1.1495 (February 10), which is closely followed by the round level of 1.1500.

Furthermore, the positive outlook for EUR/USD remains valid as long as it remains above the important 200-day SMA.