EUR/USD appears consolidative near parity amidst risk-off mood

EUR/USD returns to the negative territory and approaches parity… again.
The European Commission released its Economic Forecasts.
Across the pond, Initial Claims and Producer Prices will take centre stage.

Pablo Piovano FXStreet

Sellers return to the single currency and drag EUR/USD back to the proximity of the parity level on Thursday.

EUR/USD weaker on USD-buying, recession talks

EUR/USD’s “dead cat bounce” on Wednesday ran out of steam around 1.0120, prompting sellers to eventually return to the market and expose the pair to keep challenging the key parity zone.

Indeed, the higher-than-expected US inflation figures on Wednesday prompted investors to start pricing in a probable 100 bps rate hike at the FOMC event in late July, which morphed into fresh oxygen to both the buck and US yields.

According to CME Group’s FedWatch Tool, the probability of a full point raise at the July 27 gathering is now at around 76% from just near 7% a month ago. A 75 bps hike sees its chances reduced to nearly 24% so far.

In the domestic calendar, the updated Economic Forecasts from the European Commission now sees the euro area expanding 2.6% this year (from 2.7%) and 1.4% in 2023 (from 2.3%). Inflation, in the meantime, is expected at 7.6% in 2022 and 4.0% in the next year, up from 6.1% and 2.7%, respectively.

Later in the NA session, Initial Claims are due seconded by Producer Prices.

What to look for around EUR

Bears maintain the EUR/USD under heavy pressure and the acceleration of the downside should open the door to another potential breach of the parity level any time soon.

In the meantime, the price action around the single currency continues to follow increasing speculation of a probable recession in the euro area, dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

Key events in the euro area this week: EMU Balance of Trade (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is down 0.28% at 1.0024 and faces the next contention at 1.9997 (2022 low July 13) seconded by 0.9859 (low December 2002) and finally 0.9685 (low October 2002). On the upside, a breakout of 1.0498 (55-day SMA) would target 1.0615 (weekly high June 27) en route to 1.0773 (monthly high June 9).

Author

Pablo Piovano

FXStreet

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD drops to daily lows near 1.1630

EUR/USD now loses some traction and slips back to the area of daily lows around 1.1630 on the back of a mild bounce in the US Dollar. Fresh US data, including the September PCE inflation numbers and the latest read on December consumer sentiment, didn’t really move the needle, so the pair is still on course to finish the week with a respectable gain.

GBP/USD trims gains, recedes toward 1.3320

GBP/USD is struggling to keep its daily advance, coming under fresh pressure and retreating to the 1.3320 zone following a mild bullish attempt in the Greenback. Even though US consumer sentiment surprised to the upside, the US Dollar isn’t getting much love, as traders are far more interested in what the Fed will say next week.

Gold makes a U-turn, back to $4,200

Gold is now losing the grip and receding to the key $4,200 region per troy ounce following some signs of life in the Greenback and a marked bounce in US Treasury yields across the board. The positive outlook for the precious metal, however, remains underpinned by steady bets for extra easing by the Fed.