The Euro (EUR) is showing indications of renewed vulnerability against the US Dollar (USD), causing EUR/USD to decline to the 1.0520 area after three consecutive sessions of gains on Monday. In contrast, the Greenback is regaining the ground it had previously lost and returning to the 106.50 region, as observed through the USD Index (DXY). This resurgence is a response to the prevailing risk-off sentiment in the global markets at the start of the week. Regarding monetary policy, investors anticipate that the Federal Reserve (Fed) will maintain its interest rates at their current levels for the remainder of the year. Simultaneously, there is speculation in the market about the possibility of the European Central Bank (ECB) pausing its policy, despite inflation levels surpassing the bank’s target and mounting concerns about the potential for a future recession or stagflation in the European region.

A look at the speculative community notes that speculators trimmed further their EUR net longs positions to levels last seen in late October 2022 in the week to October 3, as per the latest CFTC Positioning report. On the domestic calendar, Industrial Production in Germany contracted at a monthly 0.2% in August, while the Investor Confidence eased a tad to -21.9 when tracked by the Sentix Index for the current month. The US docket will be empty on Columbus Day holiday, while investors’ attention is expected to be on speeches by Dallas Fed President Lorie Logan (voter, hawk), FOMC Governor Michael Barr (permanent voter, centrist) and FOMC Governor Philip Jefferson (permanent voter, centrist).

EUR/USD resumes the downside and corrects lower from peaks around 1.0600. The continuation of selling pressure on EUR/USD might result in a review of the 2023 low at 1.0448 seen on October 3, with a challenge of the crucial round mark of 1.0400. If this level is breached, it may pave the way for a retest of the lows of 1.0290 (November 30, 2022) and 1.0222 (November 21, 2022). If the pair gains momentum, it may aim for the next upward hurdle at 1.0617 from September 29, followed by the important 200-day SMA at 1.0823. If this level is breached, the August 30 high at 1.0945 and the psychological hurdle of 1.1000 may be tested. If the pair breaks beyond the August 10 peak of 1.1064, it might reach the July 27 high of 1.1149 and perhaps the 2023 peak of 1.1275 from July 18. As long as the EUR/USD remains below the 200-day SMA, additional negative pressure is possible.