Euro recedes to daily lows near 1.0730, looks at US inflation data.

The Euro faces further selling pressure against the US Dollar.Stocks in Europe trade amidst generalized losses on Wednesday.EUR/USD’s weekly recovery seems to have been capped around 1.0770.The USD Index (DXY) continues to target the 105.00 region.EMU Industrial Production contracted more than expected in July.

Investors’ attention will be on the release of US inflation figures.The Euro (EUR) appears offered against the US Dollar (USD) after Wednesday’s opening bell in the old continent, prompting EUR/USD to slip back to the 1.0730 region, or daily lows.

On the USD-side of the equation, the Greenback pays another visit to the 104.70-104.80 band when tracked by the USD Index (DXY), helped by a mild uptick in US yields across different maturities ahead of the publication of key US inflation readings for August.In terms of monetary policy, the anticipation of a potential interest rate hike by the Federal Reserve (Fed) in November seems to have waned recently, while market participants continue to factor in the likelihood of rate cuts taking place in the second quarter of 2024.

Turning our attention to the European Central Bank (ECB), market discussions seem to lean towards a pause after Thursday’s meeting and an additional quarter-point rate raise by year-end, given the current state of a somewhat divided Council.

Looking at the euro docket, Industrial Production in the euro bloc contracted at a monthly 1.1% in July and 2.2% from a year earlier on Wednesday. Across the ocean, the usual weekly Mortgage Applications measured by MBA and the EIA’s report on crude Oil inventories are also due, apart from the key US CPI prints.

Daily digest market movers: Euro stays cautious prior to key US data.The EUR fades part of the recent advance against the USD.

US and German yields manage to pick up some upside traction.Markets see the ECB keeping the deposit rate unchanged on Thursday.

UK GDP results missed estimates in July.

Markets keep adjusting to potential rate cuts by the Fed in Q2 2024.

Producer Prices in Japan rose more than expected in August.

The PBoC will promote measures to stimulate demand.

Technical Analysis: Euro faces another potential test of 1.0700

EUR/USD’s weekly recovery seems to have met a decent resistance area around 1.0770.

If EUR/USD manages to break below the September 7 low at 1.0685, it may enter a phase of retesting the May 31 low at 1.0635 before potentially reaching the March 15 low at 1.0516. A breach of the latter level could initiate a possible examination of the 2023 low at 1.0481 seen on January 6.

On the upside, the current focus is on targeting the crucial 200-day Simple Moving Average (SMA) at 1.0826. Beyond that point, a bullish momentum might lead to a challenge of the weekly peak at 1.0945 from August 30, further supported by the provisional 55-day SMA at 1.0935. Subsequently, this scenario could pave the way for an advance towards the psychological level of 1.1000 and the August high at 1.1064 seen on August 10. If the spot clears this area, it could alleviate some of the bearish pressure and potentially aim for July’s 27 peak at 1.1149, followed by the 2023 top at 1.1275 from July 18.As long as the EUR/USD remains below the 200-day SMA, there is a possibility of a sustained decline in the pair.

ECB FAQS

What is the ECB and how does it influence the Euro?

The European Central Bank (ECB) in Frankfurt, Germany, is the reserve bank for the Eurozone. The ECB sets interest rates and manages monetary policy for the region.

The ECB primary mandate is to maintain price stability, which means keeping inflation at around 2%. Its primary tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will usually result in a stronger Euro and vice versa.

The ECB Governing Council makes monetary policy decisions at meetings held eight times a year. Decisions are made by heads of the Eurozone national banks and six permanent members, including the President of the ECB, Christine Lagarde.

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