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Euro aims to regain upward momentum in Asian trading

Key issues currently driving the EURUSD pair:

- AUDUSD retraced to a two-month high. The easing of coronavirus restrictions and higher commodity prices have supported demand for the Australian dollar.

- The treasury curve steepened between US3Y and US10Y yields, meaning that the market is optimistic about the Fed's rate hike.

- The Japanese yen lost ground amid improved risk appetite among investors, which was supported by gains in US stock indices.

- The S&P 500 added 0.74% and is currently hovering near its all-time high of 4,545.85.

The euro rose 0.20% to 1.1634 against the dollar on Tuesday, October 19.

Asian trading opened with a decline in the DXY index. The demand for risk-sensitive assets climbed on the back of rising Asian stock indices and declining US10Y yields. During the first half of the session, the single currency rose to 1.1669, sterling jumped to 1.3832, and gold increased to $1,785/oz.

Sterling fared better than the euro amid expectations of a rate hike, drawing additional support from Boris Johnson, who reiterated his intention to fix Brexit’s Northern Ireland Protocol.

EURUSD fell back to 1.1630 after the EURGBP cross pair reversed direction and the UST10Y resumed its ascent.  Meanwhile, Antipodean currencies brushed off the rise in UST yields. The demand for risk-sensitive assets persisted up until the close of the European session, and only then started to ease. The euro took a harder hit than the EURGBP cross.

Risk appetite was also supported by gains in US stock indices, which kept the EURUSD pair above 1.1630. The S&P 500 added 0.74%, extending its recovery after the September correction. The S&P 500 is now close to its all-time high. The stock market drew support from positive Q3 earnings reports. Over 80% of companies have reported net profit above the consensus estimates.

Todays macro agenda (GMT 3)

09:00 Germany: PPI (September); UK: core inflation rate, PPI core output, retail price index (September)

11:00 Eurozone: current account, adjusted for seasonal fluctuations (August)

11:30 UK: house price index (August)

12:00 Eurozone: core inflation rate (final, September)

15:30 Canada: core inflation rate (September)

17:30 US: EIA weekly petroleum status report (September 8-15)

19:00 US: Chicago Fed President Charles Evans

21:00 US: Fed Beige Book

Current outlook

By the time of writing, major currencies were trading in positive territory, with the exception of the yen and franc. Risk-on mood still prevails. The aussie and the kiwi dollars top the leaderboard.

Today, market participants will focus on inflation data out of the UK, the Eurozone, and Canada. These releases are important for central banks, so FX traders are advised to watch for them.

Technical analysis

The dollar has entered a corrective phase that could last until the November FOMC meeting. EURUSD bounced off the 1.1630 support level, with price action recovering to 1.1652. Given upbeat risk attitude, the road to 1.1690 is open for buyers. That said, the EURGBP cross is in decline due to expectations for a BoE rate hike, creating a drag on the key pair.

The rebound in the key pair will likely fade if price action drops below 1.1630, since the odds of a decline to 1.1530 would increase in that case.

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