EUR/USD makes a U-turn and revisits the 0.9870 region

Following another test of the 0.9800 neighbourhood, EUR/USD manages to regain some upside traction and advances to the 0.9870 region on Thursday.

EUR/USD looks well supported around 0.9800

EUR/USD partially reverses the weekly leg lower after the Fed-induced pullback forced the pair to retreat to the area last visited back in later October 2002 near the 0.9800 mark on Wednesday and earlier on Thursday.

The daily recovery in spot comes in response to the now renewed selling pressure surrounding the dollar, as investors appear to be cashing up some gains considering the acute uptick in the wake of the Fed’s decision to hike rates at its gathering on Wednesday.

In the euro calendar, the EMU advanced Consumer Confidence gauged by the European Commission will be the only release of note ahead of the ECB General Council Meeting and speeches by Board members E.Fernandez-Bollo, A.Tuominen and I.Schnabel.

In the US docket, Initial Claims and the CB Leading Index will take centre stage later in the NA session.

What to look for around EUR

EUR/USD tumbled to nearly 2-decade lows in the 0.9800 neighbourhood following the equally abrupt move higher in the dollar, particularly exacerbated after the Fed’s move on rates on Wednesday.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence.

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: Flash Consumer Confidence (Thursday) – EMU, Germany Flash Manufacturing/Services PMI (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections on September 25. 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 advancing 0.38% at 0.9874 and the next up barrier is at 1.0050 (weekly high September 20) followed by 1.0085 (55-day SMA) and finally 1.0197 (monthly high September 12). On the flip side, a breach of 0.9806 (2022 low September 22) would target 0.9685 (October 2002 low) en route to 0.9608 (September 2002 low).