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EUR/USD extends recovery into London fix, stays below 1.15

  • European Commission rejects Italy’s budget proposal.
  • Consumer confidence in the euro area improves slightly.
  • US Dollar Index records modest losses below 96.

After slumping to a 4-day low at 1.1438, the EUR/USD pair staged a modest recovery and touched a session high of 1.1493 in the last hour before losing its momentum. Although there were no clear catalysts behind that move, a position readjustment at the end of the London session may have a provided a boost to the pair. At the moment, EUR/USD is trading at 1.1480, adding 0.15% on a daily basis.

Earlier today, the data from Germany showed that the Producer Price Index rose 0.5% on a monthly basis and lifted the annual rate to 3.2% compared to analysts’ estimate of 2.9%. Moreover, the European Commission announced that the Consumer Confidence Index in the euro area improved slightly from -2.9  to -2.7  in the preliminary estimate compared to the market expectation of -3.2. Nevertheless, ahead of this week’s ECB meeting, the market reaction to these data releases stayed limited.

Previewing this week’s event, “The habitually cautious tone can be reinforced on the back of growing risk due to lingering concerns about protectionism, recent stock market correction and renewed bond sell-off in Italy. In this regard, we do not expect the strategy on QE to be altered at all,” BBVA analysts said.

Meanwhile, the European Commission’s Vice-President, Valdis Dombrovskis, announced that they rejected Italy’s budget proposals and asked for a revised plan to be submitted in three weeks. “Italian government is ‘openly’ going against past commitments on the budget,” Dombrovskis said. “Experience shows higher fiscal deficits, debt does not bring lasting growth but makes the economy vulnerable.”

On the other hand, the US Dollar Index, which touched a fresh 2-week high at 96.16, started to consolidate its gains amid a lack of macroeconomic data releases that could support the buck. At the moment, the index is down 0.15% on the day at 95.90.

Technical outlook by FXStreet Chief Analyst Valeria Bednarik

The 4 hours chart for the pair shows that it’s currently retreating from around a bearish 20 SMA, after two failed attempts to surpass it. The 100 SMA in the mentioned chart maintains a strong bearish slope and converges with the 23.6% retracement of the October decline at around 1.1525, maintaining the risk leaned to the downside. Technical indicators, however, lack directional strength, as the pair remains within familiar levels, having bounced from a daily low of 1.1439. As mentioned on a previous update, a breakthrough 1.1430 is needed to fuel the slump toward 1.1360.

Support levels: 1.1460 – 1.1430 – 1.1400.    

Resistance levels: 1.1525 – 1.1575 – 1.1610.

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