Euro loses traction and revisits the 1.0530 zone on risk-off trade

• The Euro looks markedly offered against the US Dollar.
• Stocks in Europe open the week with marked losses.
• EUR/USD retreats to the 1.0520 zone on USD-buying.
• The USD Index (DXY) reverses recent weakness and tests 106.30.
• Industrial Production in Germany surprised to the downside.

The Euro (EUR) is displaying signs of increased weakness relative to the US Dollar (USD), leading to EUR/USD to drop to the 1.0530 zone following three consecutive sessions of gains.

In contrast, the Greenback is reclaiming ground lost and revisiting the 106.30 region when gauged by the USD Index (DXY) in response to the prevailing risk-off sentiment in the global markets at the beginning of the week.

Regarding monetary policy, investors currently anticipate that the Federal Reserve (Fed) will maintain its interest rates at their current levels for the remainder of the year. Simultaneously, there is ongoing speculation in the market about the possibility of the European Central Bank (ECB) pausing its policy adjustments, despite inflation levels surpassing the bank's target and mounting concerns about the potential for a future recession or stagflation in the European region.

On the domestic calendar, Industrial Production in Germany contracted at a monthly 0.2% in August.

The US docket will be empty on Columbus Day holiday, while investors’ attention is expected to be on speeches by Dallas Fed Lorie Logan (voter, hawk), FOMC Governor Michael Barr (permanent voter, centrist) and FOMC Governor Philip Jefferson (permanent voter, centrist).

Daily digest market movers: Euro surrenders part of the recent advance

• The EUR abandons the area of recent peaks vs. the USD.
• German 10-year bund yields kick off the week on the back foot.
• Investors see the Fed refraining from moving on rates in the next months.
• Markets believe the ECB will pause its rate hike campaign.
• ECB’s Kazaks favoured an impasse at the bank’s hiking cycle.
• German Industrial Production adds to recession fears.
• Speculation on FX intervention in USD/JPY remains firm.
• Oil jumps on Israel-Hamas conflict.

Technical Analysis: Euro appears initially capped by 1.0600

EUR/USD resumes the downside and corrects lower from peaks around 1.0600 the figure.

The continuation of selling pressure on EUR/USD might result in a review of the 2023 low at 1.0448 (October 3), with a challenge of the crucial round mark of 1.0400. If this level is breached, it may pave the way for a retest of the weekly lows of 1.0290 (November 30, 2022) and 1.0222. (November 30, 2022).

If the pair gains momentum, it may aim for the next upward hurdle at 1.0617 (September 29), followed by the important 200-day SMA at 1.0823. If this level is breached, the weekly high at 1.0945 (August 30) and the psychological hurdle of 1.1000 may be tested. If the pair breaks beyond the August peak of 1.1064 (August 10), it might reach the weekly high of 1.1149 (July 27) and perhaps the 2023 peak of 1.1275. (July 18).

However, it is critical to remember that as long as the EUR/USD remains below the 200-day SMA, additional negative pressure is possible.