EUR/USD eases to 0.9850 after rejection at 0.9880

• The euro retreats below 0.9850 after failure at 0.9880.
• The positive market sentiment has acted as a tailwind for the euro.
• EUR/USD correction seen capped below 0.9980/1.0000 – ING.

Eurodollar’s recovery from last week’s lows at 0.9635 has lost steam right below 0.9900 and the pair pulled back to 0.9850 on Tuesday’s afternoon US Trading session. The euro, however, remains moderately positive on the daily chart.

The euro, favoured by the risk-on mood

The common currency managed to extend gains in the early European session, pushing the pair to session highs at 0.9875. European and US stock markets have advanced for the second consecutive day as the enthusiasm for Britain’s U-turn on the tax cuts plan is offsetting concerns about the deterioration in the global economic perspectives.

The mixed German ZEW report, which has shown better than expected sentiment readings in Germany and the Eurozone, while the current situation view has deteriorated beyond expectations, has not dented the EUR recovery.

In the US, a brighter-than-expected industrial report has offered some respite to the USD. Industrial production increased 0.4% in September, beating expectations of a 0.1% increment, while capacity utilization reached a level of 80.3% against the market consensus of 80.0%.

EUR/USD correction to be limited at 0.9980/1.0000 – ING

Currency analysts at ING observe the current euro recovery as a mere correction, which is expected to be capped below 1.0000: Energy shock is temporarily going into reverse as European gas prices drop sharply on the warmer weather and European governments having largely achieved their gas storage targets (…) “A quiet week for US data (just soft US housing) creates a corrective window for EUR/USD, where an obvious target is the top of this year's bear channel at around the 0.9980/1.0000 area. We would assume that this continues to hold the correction.”

Technical levels to watch