Euro extends recovery as markets digest political turmoil

• The Euro bounces further against the US Dollar on Monday after hitting 1.0224 last week. 
• Traders assess the impact of the political turmoil in Italy, Austria, and Canada. 
• Markets assess European PMI and preliminary Germany’s inflation data for December this Monday.

The Euro is setting forth a second day of recovery and trades above 1.0350 at the time of writing on Monday, heading further away from the fresh 2-year low of 1.0224 seen on Thursday. The positive move is further bolstered by the December Purchasing Managers Index (PMI) releases, with Spanish, Italian, French, German, and the broader Eurozone data recovering from prior month readings and beating expectations. 

Markets are also sending the Euro higher due to global political turmoil. Italian Prime Minister Giorgia Meloni broke the unified European ranks by visiting President-elect Donald Trump at Mar-a-Lago, while Canadian Prime Minister Justin Trudeau is set to resign this week, according to Bloomberg News. 

Meanwhile, markets are bracing for the first normal trading week of the year regarding the economic calendar. Traders will return to their trading desks, and financial markets are expected to run back to their normal capacity. It is a very packed calendar for both Europe and the US, with the US Nonfarm Payrolls release on Friday as the main focal point for this week. 

Daily digest market movers: Euro strikes back

• The Spanish HCOB PMI for the Services sector came in at 57.3, above the 54.1 expected and the 53.1 previous reading.
• The Italian HCOB Services PMI recovered from contraction and came in at 50.7, above the 50.0 estimate and better than the previous 49.2 reading.
• France’s HCOB Services PMI rebounded to 49.3, coming from 48.2 the previous month and beating the estimate of 48.2.
• Germany’s HCOB Services PMI reading came in at 51.6, above the estimate and previous reading of 51.4. 
• The German Consumer Price Index (CPI) is set to be released at 13:00 GMT. The December preliminary reading is expected to tick up by  0.4% on a monthly basis compared to the -0.2% in the prior month. The preliminary CPI is expected to rise to 2.4% year-over-year.
• At 14:45 GMT, S&P Global will publish the US Services PMI reading. The final December reading is expected to remain stable at 58.5.

Technical Analysis: EUR/USD tries to head back to 1.04

EUR/USD has seen traders quickly add to their short positions that were unwinded before Christmas, triggering a meltdown to 1.0224 last week. With the oversold Relative Strength Index (RSI), a bounce could unfold to 1.04 or even 1.0448 if the current European data adds to the momentum. 

On the upside, the 1.04 big figure is the first level to watch for. Next is the pivotal level at 1.0448, the low of October 3rd, 2023. Once through that level, the 55-day Simple Moving Average (SMA) at 1.0565 comes into play. 

On the downside, the current two-year low at 1.0224 is the first support to be retested. Further down, the pivotal level at 1.02 would mean a fresh two-year low. That would open up the room to head to parity, with 1.0100 as the last man standing before that magical 1.00 level. 

EUR/USD: Daily Chart