EUR/USD extends the upside to 2-week highs past 0.9900 ahead of Lagarde

While the greenback accelerates its daily decline, EUR/USD exacerbates its march north and breaks above the key 0.9900 hurdle on Tuesday.

EUR/USD now targets the parity zone

Indeed, EUR/USD now navigates the area of fresh 2-week highs past the 0.9900 hurdle, always propped up by the weaker tone surrounding the buck, which appears in turn under pressure against the backdrop of declining US yields across the curve.

However, the decline in yields is by no means exclusive to the US debt market. In fact, the German 10-year bund yields retreat to multi-session lows in the vicinity of 1.75% after climbing to levels last seen in August 2011 just few sessions ago.

Data wise in Euroland - and while market participants wait for Chairwoman Lagarde – Producer Prices in the euro zone rose more than expected 5% MoM in August and 43.3% over the last twelve months.

In the US, all the attention will be on the release of Factory Orders and speeches by FOMC’s Logan, Williams, Mester, Jefferson and Daly.

What to look for around EUR

EUR/USD keeps the strong recovery well and sound with the renewed target at the 0.9900 neighbourhood, always against the backdrop of the intense drop in the greenback.

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: Eurogroup Meeting, Germany, EMU Final Manufacturing PMI (Monday) – ECB Lagarde (Tuesday) – Germany Balance of Trade, EMU, Germany Final Services PMI (Wednesday) – Germany Construction PMI, EMU Retail Sales, ECB Accounts (Thursday) – Germany Retail Sales (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 0.95% at 0.9918 and the breakout of 0.9934 (weekly high October 3) would target 1.0032 (55-day SMA) en route to 1.0050 (weekly high September 20). On the other hand, the next support appears 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).