EUR/USD’s recovery halts at 1.1610; the pair returns below 1.1600

• The euro remains capped below 1.1600, close to long-term lows at 1.1525.
• The sour market sentiment has weighed on the euro's recovery attempt.
• EUR/USD seen extending decline to 1.1400 – Scotiabank.

The common currency has attempted to pick up from the 1.1575 low hit earlier on Monday, before failing at 1.1610 and returning to levels below 1.1600. On a broader picture, the EUR/USD remains unable to return above1.1600 and put some distance from the year-to-date- ows at 1.1525 hit last week.

Risk aversion weighs on the euro

The risk-off market mood seen on Monday, with the major European stock indexes in the red and Wall Street mixed, has weighed on the Eurodollar’s upside attempts. Inflation fears, which have returned to the spotlight, combined with downbeat macroeconomic data from China have curbed appetite for risky currencies.

The third quarter's Chinese GDP has disappointed earlier today, showing a 4.9% growth and missing expectations of a 5.2% increment. Beyond that, industrial production increased 3.1%, against market expectations of a 4.5% reading. These figures have increased concerns about a slowdown on the Chinese economy, hit by high inflation and supply chain disruptions, that could send shockwaves through the whole world.

Furthermore, the global increase in inflation keeps adding negative pressure in the euro which has been one of the worst G10 performances over the last weeks. The surging energy prices have pushed consumer inflation to 13-year highs in the Euro Area and are threatening to derail the post-pandemic recovery.

EUR/USD: Expected to extend losses towards 1.1400 – Scotiabank

According to the FX Analysis team at Scotiabank, the technical EUR/USD picture suggests a further decline towards 1.1400: “Spot’s drift back to the 1.1575/85 zone today leaves it vulnerable to renewed pressure on the low 1.15 area (…) We think broader technical pointers continue to indicate scope for EUR/USD losses to extend to the low 1.14s in the near-term (2-4 weeks) while medium-term pointers suggest losses to the 1.11 area.”

Technical levels to watch