EUR/USD bounces up from lows as market sentiment improves

EUR/USD is trading with moderate gains on Tuesday, changing hands at 1.1735 at the time of writing after hitting four-week lows near 1.1650 the previous day. Weak US manufacturing activity data and dovish comments from Federal Reserve (Fed) speakers have curbed demand for the US Dollar (USD), as concerns about the US intervention in Venezuela fade.

US ISM Manufacturing Purchasing Managers' Index (PMI) figures revealed that the sector's business activity fell at its fastest pace in the last 14 months, with new orders contracting while prices keep rising. This, coupled with some dovish comments by Minneapolis Fed President Neel Kashkari, renewed hopes of further monetary easing by the US central bank and sent the US Dollar lower.

On Tuesday's economic calendar, the German preliminary Harmonized Index of Consumer Prices (HICP) reading for December and the final Eurozone HCOB Services PMI will grab the attention during the European session.

In the US, Richmond Fed President Thomas Barkin's speech and the final S&P Global Services PMI might have some impact on the US Dollar, although the main focus is on a string of US labour data, due later this week, especially Friday's Nonfarm Payrolls (NFP) report.

Daily Digest Market Movers: US Dollar loses ground as market sentiment improves

• The combination of weak US manufacturing data seen on Monday, dovish comments from Fed's Kashkari, and easing concerns about the consequences of the intervention in Venezuela brought appetite for risk back to the table on Monday's US session, and sent the US Dollar retreating across the board.
• US ISM Manufacturing PMI dropped to 47.9 in December from 48.2 in November, compared to expectations of a mild improvement to 48.3. New orders edged up to 47.7 from 47.4 in the previous month but remain in contraction territory, while the Prices Paid subindex remained unchanged at 58.5, levels reflecting significant inflationary pressures.
• Later on, Minneapolis Fed President Neel Kashkari said that inflationary pressures are slowly trending down, but warned that the jobless rate could "pop" higher, which supported market hopes of further Fed monetary easing.
• Geopolitical concerns triggered by the US military intervention in Venezuela have mostly remained subdued. Nicolás Maduro pleaded not guilty in a New York Federal Court, and investors have taken in stride China's warnings about "hegemonic acts" that violate international law.
• On the Eurozone calendar, the main attraction will be Germany's preliminary HICP figures for December, which are expected to show that inflation bounced up 0.4% in the month, from -0.5% in November. The yearly rate, however, is seen easing to 2.2% from 2.6% in the previous month.
• Previously, the Eurozone final HCOB Services PMI is expected to show that the sector's activity slowed down to a level of 52.6 in December, from 53.6 last month.
• In the US, the final US S&P Global Services PMI is the only macroeconomic release worth mentioning today. Preliminary estimations showed a slowdown to 52.9 in December, from 54.1 in November.

Technical Analysis: EUR/USD bounces from 1.1670 support

The EUR/USD found support at the 1.1670 area on Monday and is looking stronger on Tuesday. The 4-hour Relative Strength Index (RSI) has returned above 50, and the Moving Average Convergence Divergence (MACD) histogram bars are popping up above zero as the MACD line crosses over the Signal line, which highlights an improving momentum.

Immediate resistance is at the January 2 high, at 1.1765. Further up the confluence of a reverse trendline with December's peak, at 1.1808, is likely to pose a significant resistance.

On the downside, session lows are at 1.1710, ahead of Monday's low of 1.1660. Further down, the next target is at the December 8 and 9 lows, in the area of 1.1615.