EUR/USD holds losses ahead of US manufacturing, construction data

EUR/USD opened the week on a soft note, and returns to the 1.1600 area at the time of writing, extending Friday's reversal from session highs above 1.1650. Markets remain moderately averse to risk on Monday, awaiting a backlog of delayed US economic data, which is underpinning support for the safe-haven US Dollar.

Earlier in the day, European Central Bank Vice President, Luis De Guindos, showed confidence that Eurozone inflation will converge towards the bank's target for price stability, but warned about tariffs and sovereign debt, and showed concerns about the risks of an abrupt change of sentiment. These comments failed to ease pressure on the Euro.

In the US, President Donald Trump stepped back on tariffs on more than 200 products, including coffee, bananas, and orange juice, acknowledging the impact of higher import costs on inflation and following a series of Democratic victories in local elections. The market reaction to the news, however, was marginal.

Later during the day, the European Commission will release the Eurozone Economic Growth Forecasts, which might provide some fundamental guidance to the Euro, ahead of the US New York Empire State Manufacturing Index and the speeches from several officials from the Federal Reserve (Fed) such as Vice Chair Philip Jefferson, New York Fed President John Williams, Minneapolis Fed President Neel Kashkari, and Governor Christopher Waller.

Daily digest market movers: A moderate risk-off mood lifts the US Dollar

• The Euro depreciates for the second consecutive day, as investors remain wary of taking risks and await the release of US economic data to better assess the momentum of the economy and the Fed's monetary easing calendar.
• Fed officials highlighted the upside risks of inflation last week, playing down concerns about a sharp deterioration of the labour market. This has prompted traders to push back expectations of a December rate cut to a 43% chance right now, from 60% last week and more than 90% one month ago, according to data by the CME Group's FedWatch tool.
• In Asia, comments by Japanese Prime Minister Sanae Takaichi, warning that a Chinese attack on Taiwan would trigger a military response, have opened a new area of friction in the region and hammered risk appetite, as China has asked its citizens to avoid travelling to Japan.
• Italian Consumer Prices Index confirmed preliminary estimations earlier on Monday, with monthly inflation contracting 0.3% in October, from -0.2% in September, and grew at a 1.2% rate from the same month last year, down from 1.6% in September.
• The New York Empire State Manufacturing Index, due later during the American session, is expected to show that business conditions in the sector deteriorated somewhat over the last month, with the index retreating to 6.1 in November from the 10.7 reading seen the previous month.
• The US Construction Spending will be the first of a slew of delayed macroeconomic reports to be released this week, and is expected to show the fourth consecutive monthly contraction with a -0.1% ewding in August, following an identical decline in July.

Technical Analysis: EUR/USD failed to break the bearish channel

EUR/USD failed to confirm above the top of the descending channel from early October highs last week and is pulling lower. Bears remain contained above the 1.1600 level so far, but technical indicators show a weakening momentum.

The 4-hour Relative Strength Index (RSI) is testing the key 50 level, and the Moving Average Convergence Divergence (MACD) in the same timeframe has crossed below the signal line, which suggests the possibility of a deeper correction.

Session lows are at the 1.1595-1.1600 area, which is closing the path towards the November 7, 10, and 11 lows in the 1.1535-1.1545 area, ahead of the November 5 lows, near 1.1470. To the upside, trendline resistance is at the 1.1640 area, and the October 28 and 29 highs are around 1.1670. Bulls would need to break above these levels to confirm a trend shift and aim for the October 17 high, near 1.1730.