Bears regain control and drag EUR/USD to the 0.9940 region

The upside bias in the greenback drags EUR/USD to new multi-session lows in the vicinity of 0.9940 at the end of the week.

EUR/USD offered on USD-gains

EUR/USD comes under renewed and quite strong downside pressure following two consecutive daily advances, breaking below the parity level with some conviction and reaching new multi-day lows in the 0.9945/40 band.

Indeed, the unabated strength in the greenback lifts the US Dollar Index 9DXY) back above the 110.00 mark in a context dominated by the rally in US yields and the investors’ adjustment to the tighter-for-longer stance from the Fed.

On the opposite side of the road, ECB’s De Guindos suggested that more rate hikes are in store, while his colleague O.Rehn noted that recession risks in the euro area remain on the rise.

In the domestic calendar, final Inflation Rate in the euro area came at 9.1% in the year to August, in line with the preliminary prints. On a monthly basis, the CPI rose 0.6% and 4.3% YoY when it comes to the Core CPI.

Across the Atlantic, the advanced U-Mich Consumer Sentiment for the month of September will take centre stage later in the NA session.

What to look for around EUR

EUR/USD breaches the parity zone and drops to multi-day lows near 0.9950 following increasing upside momentum in the US dollar.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

On the negatives for the single currency emerge the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals.

Key events in the euro area this week: Italy, EMU Final Inflation rate (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. Fragmentation risks amidst the ECB’s normalization of its monetary conditions. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook.

EUR/USD levels to watch

So far, the pair is losing 0.43% at 0.9953 and the breakdown of 0.9944 (weekly low September 16) would target 0.9863 (2022 low September 6) en route to 0.9859 (December 2002 low). On the other hand, the initial barrier emerges at 1.0197 (monthly high September 12) followed by 1.0202 (August 17 high) and then 1.0314 (100-day SMA).