EU retail sales and US midterm elections in focus

On Tuesday, European stocks plunged due to concerns about slowing Chinese demand. In addition, there is trepidation ahead of the midterm elections in the United States which will determine which party will take control of Congress.

In Europe, third-quarter earnings are underway, with a number of big companies reporting. In addition, the focus of the European data calendar will be Eurozone retail sales for September, which are expected to grow 0.4% on the month, still down 1.3% on the year as consumers struggle with rising prices.

Any market reaction will depend on whether Republicans are able to win back the House of Representatives, the Senate, or both. It is pretty much baked into the market that the Republicans are going to win the house. Thus, we can say it will be a positive thing for the markets if it happens. However, for a considerable benefit of S&P500 it needs the republicans take back the Senate as well.

Moreover, Wall Street will be closely watching Thursday's consumer price index report as it will provide the latest information on the effectiveness of the Federal Reserve's interest rate hikes in taming inflationary pressures. It could also be a signal indicating the central bank's course of action going forward as another higher-than-expected report could encourage the central bank to raise interest rates more aggressively in December.

EUR/USD struggles to maintain parity

The EUR/USD pair experienced a mild correction in the Tokyo session after testing Monday's high of 1.0031. Although there has been a decrease in selling interest in the currency pair as a result of getting exhausted by the upside momentum, the euro still maintains its parity on account of the fact that the overall risk impulse is still positive.

While the US inflation report and the mid-term elections are two key risk events for the dollar, macro factors continue to point towards a weaker EUR/USD, and with the economic uncertainty in the eurozone ahead of the winter and the still hawkish Fed, it is not likely that the procyclical EUR/USD will easily stay above parity in the weeks to come.

Throughout the eurozone, we have heard calls for more tightening to be carried out. As a result, Christine Lagarde, the president of the European Central Bank, and Francois Villeroy de Galhau, a member of the Governing Council, both have attempt to maintain their hawkish attitudes. Despite this, this is unlikely to provide the Euro with any particular form of support at this time.

Demand fears weigh on crude oil prices

The price of oil fell Tuesday after fresh COVID outbreaks were reported in China, which weighed on hopes that the world's top crude importer could resume its rise in oil demand.

There was also downward pressure on oil prices from a stronger greenback. The price of oil is usually determined by the value of the U.S. dollar, so a stronger dollar will make the commodity more expensive for holders of other currencies.

There is an alarming increase in cases in a number of major Chinese cities, just a short time after Chinese health officials reaffirmed the country's commitment to having a zero-COVID policy, according to official data.