Euro strengthens slightly near 1.0600 as risk appetite improves

• The Euro clings to daily gains against the US Dollar.
• Stocks in Europe open in a mixed tone on Monday.
• EUR/USD’s upside remains limited around the 1.0600 zone.
• The USD Index (DXY) extends its range bound theme in the low 106.00s.
• Eurozone flash Consumer Confidence is due in the domestic docket.
• The Chicago Fed National Activity Index comes next in the US calendar.

The Euro (EUR) is showing a slight strength against the US Dollar (USD), causing EUR/USD to keep the trade around the 1.0600 region at the beginning of the week.

The Greenback is managing to regain some stability, advancing modestly towards the low-106.00s when tracked by the USD Index (DXY). This price action comes in tandem with a tepid bounce in US yields across different maturities and a knee-jerk reaction in market sentiment towards riskier assets.

In terms of monetary policy, market participants expect the Federal Reserve (Fed) to maintain its current stance of keeping interest rates unchanged at the November 1 meeting. This view was reinforced by comments from Fed Chair Jerome Powell at his appearance at the Economic Club of New York last Thursday.

At the same time, investors are contemplating the possibility of the European Central Bank (ECB) discontinuing certain policy measures. This comes despite inflation levels surpassing the bank's target and growing concerns about the risk of a slowdown or stagflation in the Eurozone's economy.

In the euro docket, the European Commission (EC) will publish its advanced gauge of the Consumer Confidence for the euro area for October.

In the US data space, the only release will be the Chicago Fed National Activity Index for September.

Daily digest market movers: Euro flattens as it looks to risk trends, geopolitics

• The EUR gathers some traction against the USD on Monday.
• US and German yields look slightly bid early in the European session.
• Investors see the Fed keeping its interest rate unchanged in November.
• Market expectations suggest that the ECB will also keep rates unchanged.
• ECB is likely to encounter a stalemate in its interest rate hiking cycle.
• Geopolitical concerns in the Middle East remain in the centre stage.

Technical Analysis: Euro outlook remains negative below 200-day SMA

The EUR/USD keeps the consolidative mood well in place below the 1.0600 region at the beginning of the week.

If the bullish trend continues, EUR/USD may test the October 12 high of 1.0639, before moving on to the September 20 top of 1.0736 and the critical 200-day Simple Moving Average (SMA) of 1.0816. A break above this level might indicate a push to the August 30 peak of 1.0945, ahead of the psychological threshold of 1.1000. Any more advances might reintroduce a challenge of the August 10 high of 1.1064 before reaching the July 27 top of 1.1149 and potentially the 2023 peak of 1.1275 seen on July 18.

If the selling tendency returns, there is an immediate support at the low of 1.0495 from October 13 prior to the 2023 low of 1.0448 seen on October 3, all before the round level of 1.0400. If this zone is violated, the weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022) may be retested.

It is crucial to recall that the risk of sustained negative pressure persists as long as the EUR/USD remains below the 200-day SMA.

(This story was corrected on October 23 at 08:20 GMT to say that the 1.0222 level was reached on November 21, 2022, not November 30, 2022.)