EUR/USD regains upside traction around 0.9900 ahead of Fed

Buyers seem to have returned to the European currency and help EUR/USD to regain the 0.9900 neighbourhood on Wednesday.

EUR/USD looks to Fed, data

EUR/USD advances moderately and sets aside part of the recent drop, managing at the same time to reclaim the 0.9900 region amidst the renewed selling pressure hitting the dollar.

In fact, the pair flirts with the key 9-month line near 0.9900, above which the pair’s downside pressure is expected to alleviate and therefore allow for extra gains in the relatively short-term horizon.

The recovery in spot comes amidst the generalized lack of traction in US and German yields, all ahead of the key FOMC event later in the European evening. It is worth recalling that the Fed is expected to hike rates by 75 bps, while Powell’s press conference could unveil details regarding a potential pivot in the Fed’s policy in the next months.

In the domestic calendar, the German trade surplus widened to €3.7B in September, while the labour market report for the month of October showed the Unemployment Change increase by 8K persons and the Unemployment Rate stay unchanged at 5.5%. Additionally, final figures saw the Manufacturing PMI ease to 45.1 during last month and deflate to 46.4 when it comes to the broader Euroland.

Across the pond, weekly Mortgage Applications are due ahead of the ADP report.

What to look for around EUR

EUR/USD manages to attract some dip buyers and spark a corrective bounce to the 0.9900 zone midweek, all accompanied by the fresh selling mood around the dollar.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The resurgence of speculation around a potential Fed’s pivot seems to have removed some strength from the latter, however.

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 fragile sentiment around the euro in the longer run.

Key events in the euro area this week: Germany Balance of Trade, Unemployment Change, Unemployment Rate, Final Manufacturing PMI, EMU Final Manufacturing PMI (Wednesday) – EMU Unemployment Rate (Thursday) – EMU/Germany Final Services PMI, ECB Lagarde (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. 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 0.25% at 0.9898 and faces the next up barrier at 1.0093 (monthly high October 27) followed by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 10). On the downside, a breach of 0.9871 (weekly low November 1) would target 0.9704 (weekly low October 21) en route to 0.9631 (monthly low October 13).