Euro loses strength as Eurozone data cast doubt on ECB hawkishness

• The Euro remains limited right above 1.0900 against the US Dollar after Friday’s rejection at 1.1010. 
• The weak German Business climate data confirms the region’s grim economic outlook.
• Investors are growing skeptical about the ECB’s ability to maintain its restrictive policy for too long.

The Euro (EUR) stages a mild recovery on Monday, favoured by a weaker US Dollar and a moderate risk-on sentiment. The pair, however, remains unable to stage a significant rebound after Friday’s reversal and remains at a short distance to the 1.0880 support area.

Eurozone data released on Monday showed that German business confidence deteriorated in December, following two consecutive improvements. The IFO Business Climate Index dropped unexpectedly in December, with the sentiment about the current economic situation and the near-term expectations posting lower levels than in the previous month.

These figures come after the downbeat PMI figures seen late last week and the contracting Gross Domestic Product (GDP) seen earlier this month, confirming the view of an upcoming economic slowdown.

This scenario poses a serious challenge for the European Central Bank (ECB) and disputes the hawkish stance ECB President Christine Lagarde defended on Thursday, following the bank’s monetary policy decision.

Daily digest market movers: Euro recovery attempts falter as Eurozone data disappoints

• The Euro remains capped below 1.0930 after Friday’s reversal at 1.1010, as weak Eurozone data challenges the ECB’s hawkish stance.
   
• German IFO sentiment Climate Index dropped to 86.4 in December from the downwardly revised 87.2 in November against market expectations of an improvement to 87.8.
   
• The Current Conditions Index dropped to 88.5 from 89.4. The market consensus anticipated an uptick to 89.5. 
   
• The index gauging German firm’s expectations deteriorated to a reading of 84.3 from 85.1. Investors expected an increase to 85.8.
   
• On Friday, Eurozone Services and Manufacturing PMIs contracted beyond expectations, suggesting a poor contribution from these two sectors to the region’s GDP growth.
   
• Earlier this month, the Q3 GDP confirmed that Eurozone economy contracted in the third quarter, with inflation levels cooling faster than expected.
   
• In light of these figures, the ECB’s “higher for longer” stance is losing credibility in investors’ views and is keeping Euro buyers subdued.  

Technical Analysis: Euro corrects lower from 1.1010 resistance area

The Euro was rejected again at the 1.1010 resistance area, and the pair remains unable to put a significant distance from the 1.0900-1.0880 support area despite Monday’s moderate risk-on markets.

The broader trend remains positive, although the pair seems to be losing momentum, with the lack of upside momentum suggesting that further correction is on the cards.

 
On the downside, a break of the December 14 low at 1.0880 and the 4-hour 100 Simple Moving Average (SMA) at 1.0870 is likely to increase bearish pressure towards 1.0825 on the way to 1.0730 lows.

On the upside, the Euro should extend beyond intra-day highs at 1.0930 to attempt a retest of the mentioned 1.1010 resistance. Above here, the next targets would be the August high at 1.1060 and the July 24 and 27 high at 1.1150.