Euro remains on the defensive below 1.0900, looks at US data

• The Euro gives away some gains against the US Dollar.
• Stocks in Europe keep the positive note so far on Thursday.
• EUR/USD drops to 1.0865 amidst USD recovery.
• The USD Index (DXY) rebounds markedly and revisits 103.50.
• US, German yields trade slightly on the defensive.
• Germany’s labour market report came in mixed in August.
• Flash CPI in France rose 1.0% MoM and 4.8% YoY in August.
• EMU advanced figures showed inflation remained sticky in August.

The selling pressure around the Euro (EUR) remains well and sound against the US Dollar (USD), forcing EUR/USD to break below the key 1.0900 figure and revisit the vicinity of the 1.0860 region on Thursday.

In the meantime, the Greenback recovers, prompting the USD Index (DXY) to bounce off Wednesday’s two-week lows in the 103.00 neighbourhood. Furthermore, US yields are declining across the curve, as investors’ reprice a pause in the Fed’s normalization process for the next few months.

In the meantime, the narrative surrounding the Federal Reserve’s (Fed) tighter-for-longer stance appears to have dwindled following the recent weaker-than-expected economic data.

By contrast, there is no news around the European Central Bank (ECB) regarding its potential decision on rates once the summer season is over.

In the domestic calendar, Retail Sales in Germany contracted 0.8% MoM in July and 2.2% over the last twelve months. Still in Germany, the Unemployment Change increased by 18K individuals in August and the Unemployment Rate ticked higher to 5.7%. Looking at the broader euro area, advanced inflation figures saw the headline CPI rise 5.3% YoY and 5.3% YoY when it comes to the Core CPI. Later in the session, the ECB will publish its Accounts for the July 27 meeting.

In the US docket, all the attention will be on the release of inflation tracked by the PCE and Core PCE for August, seconded by usual Initial Jobless Claims, Personal Income, Personal Spending and the speech by Boston Fed Chair Susan Collins.

Daily digest market movers: Euro could revisit the 200-day SMA

• The EUR surrenders part of the recent strong advance against the USD.
• Fundamentals in Germany continue to deteriorate.
• Investors see the Fed keeping rates on hold in the next few months.
• BoE’s Huw Pill said the country is facing second-round effects from inflation.
• Investors see the Fed on hold for the remainder of the year.
• ECB's Isabel Schnabel said there is uncertainty around the peak rate.
• ECB's R. Holzmann advocated for 1-2 extra rate hikes.
• Further stimulus measures are likely to be taken by the PBoC in the near term.
• BoJ’s Toyoaki Nakamura said economic recovery is needed to end the loose policy.
• The focus now shifts to US PCE, weekly Claims.

Technical Analysis: Euro's upside appears limited near 1.0950

The three-day rebound in EUR/USD seems to have met quite a decent obstacle ahead of the 1.0950 region. 

In case bulls regain the upper hand and EUR/USD surpasses the weekly top of 1.0945, the pair is expected to meet the provisional 55-day Simple Moving Average (SMA) at 1.0967 prior to the psychological 1.1000 barrier and the August top at 1.1064 (August 10). Once the latter is cleared, spot could challenge the July 27 peak at 1.1149. If the pair surpasses this region, it could alleviate some of the downward pressure and potentially visit the 2023 peak of 1.1275 seen on July 18. Further up comes the 2022 high at 1.1495, which is closely followed by the round level of 1.1500.

The resumption of the downward bias could motivate the pair to initially test the key 200-day SMA at 1.0813 ahead of the August low of 1.0765 (August 25). The breach of the latter exposes the May 31 low of 1.0635 prior to the March 15 low of 1.0516 and the 2023 low at 1.0481 seen on January 6.

Furthermore, sustained losses are likely in EUR/USD once the 200-day SMA is breached in a convincing fashion.