Euro drops to multi-week lows and approaches 1.0750, looks at ECB

The Euro resumes its decline against the US Dollar, with EUR/USD challenging multi-week lows at 1.0750.
Stocks in Europe open Tuesday’s session in the red, while US markets return to their usual activity.
The USD Index (DXY) advanced to three-month tops.
The final Services PMIs are due in the euro area.
The ECB will release its Consumer Expectation Survey.
ECB’s Schnabel, De Guindos, Fernandez-Bollo are due to speak.
The Euro (EUR) loses further ground against the US Dollar (USD), dragging EUR/USD to post new multi-week lows near the 1.0750 level on Tuesday. The resurgence of selling pressure around the pair appears to be underpinned by weaker-than-expected Caixin Services PMI data from China, which points to softening activity in the country’s services sector.

The investors’ bias towards the safe-have universe lends support to the Greenback early in the European morning and lifts the USD Index (DXY) to new highs around 104.50 amidst the still unclear direction in US and German bond yields.
Meanwhile, the market remains confident regarding the Federal Reserve’s (Fed) decision to halt its campaign of interest rate hikes for the remainder of the year. In addition, speculation has begun to emerge over the possibility that interest rate cuts may not materialize until March 2024.

On the other hand, the European Central Bank (ECB) finds itself navigating a climate of heightened uncertainty surrounding the potential course of interest rates beyond the summer months. Market discussions revolve around the concept of stagflation, further contributing to the prevailing sense of ambiguity.

In the European calendar, the release of the final Services PMI for August is followed by the publication of the ECB’s Consumer Expectations Survey and speeches by Board members Eduardo Fernandez-Bollo, Isabel Schnabel and Luis De Guindos.

Daily digest market movers: Euro suffers another bout of weak Chinese prints
The EUR faces extra headwinds against the USD on Tuesday.
Chinese Caixin Services/Composite PMIs weakened in August.
The Services sector PMIs will take the centre stage in the European docket.
Disinflation and cracks in the US labour market support the Fed’s impasse.
Investors see the Fed potentially cutting rates in Q2 2024.
The RBA left its benchmark interest rate unchanged at 4.10% as expected.
Technical Analysis: Euro risks a drop to 1.0635
EUR/USD remains under pressure and the recent breach of the key 200-day Simple Moving Average (SMA) at 1.0819 seems to prop up the likelihood of extra losses in the short term.

If EUR/USD accelerates its losses, it could revisit the May 31 low of 1.0635, prior to the March 15 low of 1.0516. The loss of the latter could prompt a potential test of the 2023 low at 1.0481 from January 6.

On the upside, spot is expected to target the critical 200-day SMA at 1.0819. North from here, bulls should meet the the weekly top of 1.0945 seen on August 30 ahead of the interim 55-day SMA at 1.0958 and prior to the psychological 1.1000 barrier and the August top at 1.1064. Once the latter is cleared, spot could challenge 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.

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