• EUR/USD extends the weekly recovery and revisits the 0.9850 region.
  • Germany labour market report surprised to the upside in September.
  • EMU Flash Inflation Rate next of importance in the euro docket.

The optimism around the European currency remains well in place for another session and this time lifts EUR/USD to fresh tops in the mid-0.9800s on Friday.

EUR/USD focuses on EMU, US data

EUR/USD advances for the third session in a row on Friday and extends further the bounce off the recent 20-year lows in the proximity of 0.9530 (September 28), always against the backdrop of the renewed and strong corrective decline in the dollar.

Indeed, the dollar comes under extra pressure and keeps correcting lower amidst the ongoing technical retracement and intense improvement in the risk complex, which eventually lends extra legs to the pair.

Moving forward, advanced inflation figures in the euro area are expected to take centre stage later in the session. Earlier in the day, the German Unemployment Rate stayted unchanged at 5.5% in September and the Unemployment Change rose by 14K persons in the same period.

Across the pond, the August’s PCE will be in the centre of the debate seconded by Personal Income/Spending along with the final print of the Consumer Sentiment for the current month.

Additionally, FOMC’s T.Barkin, L.Brainard, L.Mester, J.Williams and M.Bowman will speak later in the NA session.

What to look for around EUR

EUR/USD’s upside momentum appears unabated for the time being and already breaks above the key 0.9800 hurdle.

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: EU Emergency Energy Meeting, 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 gaining 0.21% at 0.9836 and a break above 0.9853 (weekly high September 30) would target 1.0050 (weekly high September 20) en route to 1.0197 (monthly high September 12). On the flip side, the next support emerges 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).

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