- EUR/USD bounces off earlier lows in the 0.9970 zone.
- The dollar gives away part of the recent advance past 109.00.
- EMU flash inflation figures surprised to the upside in August.
Following a knee-jerk to the 0.9970 region, EUR/USD managed to regain traction and reclaim the parity zone on Wednesday.
EUR/USD meets support around 0.9970
EUR/USD now looks to add to its positive start to the week although it remains at the mercy of inconclusive risk appetite trends for the time being.
In the meantime, higher-than-expected inflation figures in the euro area for the current month appear to have lent further conviction to the investors’ perception of a 75 bps rate hike at the ECB event in September, which seems to have lent some wings to the single currency.
In the US docket, the revised ADP report showed the US private sector added 132K jobs in August, less than initially estimated.
What to look for around EUR
EUR/USD now treads water amidst the renewed bid bias in the greenback as well as some worsening conditions in the risk complex.
So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence. However, potential shifts to a more hawkish stance from ECB’s policy makers regarding the bank’s rate path could be a source of strength for the euro.
On the negatives for the single currency emerge the so far 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.
Key events in the euro area this week: EMU Flash Inflation Rate, Germany Unemployment Change, Unemployment Rate (Wednesday) – Germany Retail Sales, Final Manufacturing PMI, EMU Final Manufacturing PMI, EMU Unemployment Rate (Thursday) – Germany Balance of Trade (Friday).
Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. 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, spot is losing 0.11% at 1.0001 and the breach of 0.9899 (2022 low August 23) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2022 low). On the other hand, the next up barrier comes at 1.0090 (weekly high August 26) seconded by 1.0202 (high August 17) and finally 1.0223 (55-day SMA).
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