Euro retreats from earlier tops near 1.0770, looks at key data

• The Euro could not sustain a move to fresh tops vs. the US Dollar.
• Stocks in Europe open Tuesday’s session in a mixed tone.
• EUR/USD’s upside momentum falters ahead of 1.0770.
• The USD Index (DXY) regains some balance following Monday’s drop.
• Germany, EMU Economic Sentiment takes centre stage later in the session.
• The NFIB index and the API report are due next in the US docket.

The Euro (EUR) fades the auspicious start of the week against the US Dollar (USD), prompting EUR/USD to return to negative territory after climbing to as high as the 1.0770 region earlier on Tuesday.

In the meantime, the Greenback reclaims some buying interest following Monday’s strong retracement and lifts the USD Index (DXY) back to the 104.70 area.

In terms of monetary policy, the anticipation of a potential interest rate hike by the Federal Reserve (Fed) in November seems to have waned recently, while market participants persist in factoring in the likelihood of rate cuts taking place at some stage in the second quarter of 2024.

Turning our attention to the European Central Bank (ECB), market discussions seem to lean towards a pause at the September 14 meeting and a quarter-point rate raise by year’s end, given the current state of a somewhat divided Council.

Back to the euro calendar, the Economic Sentiment gauged by the ZEW Institute for the current month will be in the limelight later in the European morning, while the NFIB Business Optimism Index and the usual weekly report on US crude oil supplies by the API are due across the Atlantic later in the NA trading hours.

Daily digest market movers: Euro remains offered below the 200-day SMA

• The EUR gives away part of Monday’s gains vs. the USD.
• The absence of direction prevails in the US, German yields so far.
• Markets see the ECB keeping the deposit rate unchanged this week.
• UK Unemployment Rate ticked higher to 4.3% in July.
• Investors continue to price in Fed rate cuts in Q2 2024.
• Final inflation figures in Spain saw the Core CPI rise 6.1% YoY in August.

Technical Analysis: Euro remains under pressure and risks extra drops

EUR/USD resumes the downward bias and refocuses on the 1.0700 region and potentially below so far on Tuesday.

In case EUR/USD succeed in breaking below the September low at 1.0685 (September 7), it could undergo a retesting phase of the May low at 1.0635 (May 31) before potentially reaching the March low of 1.0516 (March 15). If the latter level is breached, it could initiate a possible examination of the 2023 low at 1.0481 (January 6).

On the contrary, regarding upward movement, the current emphasis is on targeting the crucial 200-day SMA at 1.0824. Beyond that point, a bullish momentum might lead to a challenge of the weekly peak at 1.0945 (August 30), further supported by the provisional 55-day SMA at 1.0937. Subsequently, this scenario could pave the way for an advance towards the psychological level of 1.1000 and the August high at 1.1064 (August 10). If spot clears this area, it could alleviate some of the bearish pressure and potentially aim for the weekly peak at 1.1149 (July 27), followed by the 2023 top at 1.1275 (July 18).

It's worth noting that as long as the EUR/USD remains below the 200-day SMA, there is a likelihood of a sustained decline in the pair.