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Following Thursday’s drop to multi-month lows, the Euro (EUR) managed to pick up some upside traction against the US Dollar (USD) on Friday, encouraging EUR/USD to retake the area above 1.0650 at the end of the week.

The improvement in sentiment surrounding the pair comes pari passu with firmer results from the Chinese economic docket published during early trade, which helps risky assets to regain some poise.

On the flip side, the Greenback recedes from recent multi-month tops around 105.40 when tracked by the USD Index (DXY) against the backdrop of further gains in US yields across different time frames.

The monetary policy landscape in the US remains broadly unchanged, with investors steadfast in their anticipation of potential interest rate cuts by the Federal Reserve (Fed) taking place at some point in the second quarter of 2024.

Shifting our attention to the European Central Bank (ECB), following the dovish rate hike on Thursday, market participants have begun to factor in an extended pause. This shift in sentiment is driven by the continuing deterioration of key economic indicators in Germany and the wider eurozone. Furthermore, inflation in the region continues to exceed the bank's target. The concerns of excessive tightening, along with mounting worries of stagflation, further support this outlook.

Back on the domestic calendar, final inflation figures in Italy showed the CPI rose 0.3% MoM in August and 5.4% over the last twelve months. In addition, the trade surplus in the broader eurozone narrowed to €6.5B during July.

Back to the ECB, President Christine Lagarde said at her speech at the ECOFIN meeting in Spain that the Council did not discuss rate cuts at the bank's event on Thursday. She also reiterated that interest rates need to be as restrictive as necessary to bring inflation down to the target in a timely fashion.

Across the Atlantic, all the attention will be on the release of August's Industrial Production readings ahead of the preliminary gauge of the Michigan Consumer Sentiment survey for September.

Daily digest market movers: Euro meets initial hurdle near 1.0670

• The EUR regains decent buying interest against the USD.
• US and German yields accelerate their upside on Friday.
• Markets see the ECB pausing its tightening campaign.
• ECB's Madis Müller ruled out further rate hikes in the next months.
• ECB's Martins Kazaks said Thursday's move was not a dovish hike (What was it, then?).
• Chinese Retail Sales, Industrial Production surprised to the upside in August.
• Investors keep assessing probable rate cuts by the Fed in Q2 2024.
• ECB President Christine Lagarde's speech fell in line with her press conference.

Technical Analysis: Euro's outlook remains bearish below the 200-day SMA

EUR/USD seems to have met initial contention around the 1.0630 region, or March lows.

If EUR/USD manages to breach its September low at 1.0631 (September 14), it might enter a phase where it retests the March low at 1.0516 (March 15). Breaking through this level could trigger a potential review of the 2023 low at 1.0481 (January 6).

Conversely, the main focus is on reaching the crucial 200-day SMA at 1.0827 on the upside. Surpassing this level could initiate a bullish momentum, leading to a challenge of the interim 55-day SMA at 1.0926, followed by the weekly peak at 1.0945 (August 30). Exceeding the latter could open the door for an advance towards the psychological level of 1.1000 and the weekly top of 1.1064 (August 10). If the pair successfully clears this region, it may potentially aim for another weekly peak at 1.1149 (July 27), followed by the 2023 high at 1.1275 (July 18).

It's important to note that as long as the EUR/USD remains below the 200-day SMA, there is a possibility of a sustained decline in the pair.

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