EUR/USD: Bears regain control below the 0.9700 mark

EUR/USD now loses some upside traction and revisits the mid-0.9600s following Wednesday’s uptick to the 0.9750 area.

EUR/USD looks to USD, data

EUR/USD regains downside traction and sheds around a cent from Wednesday’s bull run to the 0.9750 zone.

Indeed, USD-bulls return to the market and push the USD Index (DXY) to daily highs near the 114.00 barrier, hurting at the same time the sentiment surrounding the risk-linked galaxy.

In line with their US peers, the German 10-year bund yields print humble gains in the wake of the opening bell in the old continent and trade at shouting distance from recent multi-year peaks.

Interesting calendar on this side of the Atlantic, as EMU’s final Consumer Confidence gauge and the Economic Sentiment are due seconded by preliminary inflation figures in Germany for the month of September.

In the NA session, final GDP Growth Rate will be in the centre of the debate ahead of Initial Claims and speeches by FOMC’s Bullard, Mester and Daly.

What to look for around EUR

EUR/USD comes under pressure after climbing as high as the 0.9750 area on Wednesday on the back of the technical correction in the dollar.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The latter has been exacerbated further following the latest rate hike by the Fed and the persevering hawkish message from Powell and the rest of his rate-setters peers.

Furthermore, the 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 – adds to the sour sentiment around the euro

Key events in the euro area this week: EMU Final Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Thursday) – EU Emergency Energy Meeting, Germany Retail Sales, France, Italy, EMU Flash Inflation Rate, Germany Unemployment Change, Unemployment Rate (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian post-elections developments. 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 retreating 0.77% at 0.9656 and faces the immediate contention at 0.9535 (2022 low September 28) ahead of 0.9411 (weekly low June 17 2002) and finally 0.9386 (weekly low June 10 2002). On the upside, a break above 0.99750 (weekly high September 28) would target 1.0050 (weekly high September 20) en route to 1.0197 (monthly high September 12).