EUR/USD extends the consolidation below parity on dollar strength

  • EUR/USD remains on the defensive below the parity level.
  • The bid tone in the greenback has magnified following Powell’s speech.
  • Markets’ attention now looks to the speech by FOMC’s Brainard.

EUR/USD stays under pressure in the lower end of the recent range well below the parity zone on Monday.

EUR/USD could revisit the 2022 lows

EUR/USD adds to Friday’s rejection from the vicinity of the 1.0100 level and trades at shouting distance from the 0.9900 area at the beginning of the week amidst investors’ reassessment of Powell’s speech last Friday.

Indeed, Powell’s speech fell on the hawkish side as widely expected, leaving well in place the odds for the continuation of the current stance to bring down inflation and also talking down the possibility of a shift to a looser monetary stance at some point in 2023 (rate cuts).

As market participants continue to adjust to Powell’s comments, US yields extend the mover higher – particularly in the short end of the curve – and the dollar gathers further traction to levels last seen nearly two decades ago.

Nothing scheduled data wise in Euroland on Monday, whereas the speech by FOMC’s L.Brainard will take centre stage across the pond.

What to look for around EUR

Occasional bullish attempts in EUR/USD remain unconvincing and appear to have resulted in selling opportunities for the time being.

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 Final Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Tuesday) – France Flash Inflation Rate, Italy Flash Inflation Rate, 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 0.26% at 0.9938 and a break below 0.9899 (2022 low August 23) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2022 low). On the flip side, the next resistance aligns at 1.0090 (weekly high August 26) seconded by 1.0202 (high August 17) and finally 1.0237 (55-day SMA).

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