EUR/USD extended its losses on Tuesday, accelerating lower on a return of risk aversion and raising questions about the euro's ability to continue the rally off its Sept.
25 daily low.
EUR/USD longs took a hit on Monday nL1N2H30JF after the PBOC's FX reserve requirement ratio adjustment, which broadly buoyed the dollar.
The dollar firmed on Tuesday despite slower inflation nL1N2H30Z4.
Fresh concern for EUR/USD longs came after German ZEW investor sentiment dropped due to COVID-19, Brexit and U.S. election risks nL8N2H4244.
The drop in sentiment likely has investors expecting additional ECB stimulus, which should weigh down the euro.
Technicals highlight the cracks developing in EUR/USD's rally.
The trend line off the Sept.
28 low, 10-day moving average and Oct.
9 daily low have been pierced while daily RSI implies downside momentum is increasing.
The long upper wick on the October monthly candle bolsters bearish tech signals.
Should the dollar's rise extend and concerns about the euro zone's economic recovery persist, EUR/USD's recent drop is likely to deepen.
Supports sit in the 1.1720/25 and 1.1680/1.1695 zones.
Breaks of those supports suggest a test of September's monthly low is likely.
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