Euro remains weak, puts the 1.0550 zone to the test

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• The Euro trades on the defensive against the US Dollar.
• Stocks in Europe close the session with marked losses.
• EUR/USD loses some momentum and slips back to 1.0550.
• The USD Index (DXY) looks bid in the low 106.00s.
• Eurozone final inflation figures matched the preliminary readings.
• Housing Starts expanded 7.0% MoM in September.

The Euro (EUR) encounters selling pressure in its exchange with the US Dollar (USD), resulting in EUR/USD declining to the 1.0550 area on Wednesday.

Meanwhile, the Greenback maintains its position in the low 106.00s, as measured by the USD Index (DXY), amid the overall indecisive price movement in global markets. This occurs amidst a prevailing cautious sentiment due to escalating geopolitical risks.

Continuing to centre attention on monetary policy, investors anticipate that the Federal Reserve (Fed) will uphold its position of not touching interest rates throughout the remainder of the year. Meanwhile, participants in the financial markets contemplate the possibility of the European Central Bank (ECB) halting policy modifications, despite inflation levels surpassing the bank’s target and mounting concerns about the potential for an economic downturn or stagflation in the region.

On the domestic calendar, the final Inflation Rate for September in the broader Eurozone saw the CPI rise 4.3% YoY and 4.5% YoY when it came to the Core CPI (consumer prices excluding food and energy costs).

Data-wise, in the US, the usual weekly Mortgage Applications tracked by MBA contracted 6.9% in the week to Ocotber 13, while Housing Starts increased 7% MoM in September (1.358M units) and Building Permits contracted 4.4% MoM (1.473M units). In addition, the Fed’s Beige Book and TIC Flows are also due.

Additionally, markets’ attention will also be on speeches by FOMC Governor Christopher Waller (permanent voter, centrist), NY Fed President John Williams (permanent voter, centrist), FOMC Governor Michelle Bowman (permanent voter, hawk), and Philly Fed President Patrick Harker (voter, hawk).

Daily digest market movers: Euro struggles to regain upside traction

• The EUR trades with modest losses against the USD.
• US and German yields now leave behind initial losses.
• Markets remain focused on the Fed’s tighter-for-longer stance.
• Investors see the ECB could pause its tightening cycle until Q3 2024.
• The crisis in the Middle East could get worse before it gets better.
• Chinese data surprised to the upside.
• UK CPI rose 6.7% YoY in September, a tad above estimates.

Technical Analysis: Euro retargets the 1.0500 support and below

EUR/USD trades in an inconclusive fashion around 1.0570 against the backdrop of a lack of direction in the Greenback.

If the rising trend continues, EUR/USD may revisit the October 12 high of 1.0639, as well as the September 20 top of 1.0736 and the significant 200-day Simple Moving Average (SMA) of 1.0820. A break above this level might signal an effort to break above the August 30 peak of 1.0945 and target the psychological level of 1.1000. Any more gains over the August 10 high of 1.1064 might take the pair towards the July 27 top of 1.1149 and possibly the 2023 peak of 1.1275 seen on July 18.

In the case that selling pressure persists, the 2023 low at 1.0448 from October 3 might be revisited, as well as the major support of 1.0400. If this level is broken, it may pave the way for a retest of the weekly lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022).

As long as the EUR/USD continues below the 200-day SMA, the possibility of continuous bearish pressure exists.