- EUR/USD extends the leg lower to the 0.9530 region.
- The dollar climbs to fresh cycle tops vs. its rival currencies.
- ECB Lagarde reiterated that further rate hikes are coming.
Bears remain well in control of the sentiment around the European currency and force EUR/USD to print new 2022 lows near 0.9530 on Wednesday.
EUR/USD drops to new lows near 0.9530
EUR/USD so far navigates the seventh consecutive session in the negative territory, down at the same time for third consecutive week and the fourth straight month.
The intense upside in the dollar keeps the pair and the risk complex in general under heightened pressure in response to the broad-based consensus among investors that the Federal Reserve will keep the current aggressive normalization process for longer than expected.
The daily decline in spot comes in tandem with another high in the German 10-year bund yields, which trade close to the 2.30% for the first time since November 2011. In the same line, US yields in the belly and the long end of the curve reach fresh multi-year peaks.
Earlier in the session, Chair Lagarde reiterated that the ECB is expected to raise rates further in the upcoming gatherings. Her colleague Holzmann hinted that the bank could even raise rates past the neutral level in case of need, while member Rehn opened the door to a significant rate increase in October.
In the euro calendar, confidence consumer gauges in Germany, France and Italy deteriorated from the previous readings at -42.5, 79 and 94.8, respectively.
Across the pond, MBA Mortgage Applications, flash Goods Trade Balance and Pending Home Sales are due seconded by speeches by FOMC’s R.Bostic, J.Bullard, M.Bowman, C.Evans and Chief Powell
What to look for around EUR
EUR/USD remains under heavy pressure against the backdrop of the unabated rally in the greenback and recorded new lows near 0.9530 earlier in the session.
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: Germany GfK Consumer Confidence, ECB Lagarde (Wednesday) – 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 0.40% at 0.9556 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 1.0050 (weekly high September 20) would target 1.0197 (monthly high September 12) en route to 1.0253 (100-day SMA).
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