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12 Oct 2022

EUR/USD comes under pressure and challenges 0.9700 ahead of Lagarde, FOMC

  • EUR/USD looks indecisive around the 0.9700 zone on Wednesday.
  • EMU Industrial Production surprised to the upside in August.
  • US Producer Prices, FOMC Minutes will take centre stage in the NA session.

The buying interest dwindles somewhat around the European currency and motivates EUR/USD to give away initial gains and put the 0.9700 area to the test on Wednesday.

EUR/USD focuses on ECB, FOMC

EUR/USD meets some obstacles following Tuesday’s humble advance in spite of the renewed weakness in the greenback and the firmer note in the risk-associated universe.

The pair’s inconclusive price action comes in tandem with a marginal uptick in the German 10-year bund yields, which flirt with the 2.34% region vs. the broad-based loss of momentum in their American peers.

Later in the session, Chair Lagarde will participate in the G20 Finance Ministers and Central Bank Governors meeting and in the 2022 IIF Annual Membership Meeting.

In the domestic calendar, Industrial Production in the euro area expanded 2.5% YoY for the month of August.

Across the pond, MBA Mortgage Applications and Producer Prices will be in the limelight ahead of the publication of the FOMC Minutes of the September gathering.

What to look for around EUR

EUR/USD looks to consolidate the recent breakout of the 0.9700 hurdle midweek.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Following latest results from key economic indicators, the latter is expected to extend further amidst the ongoing resilience of the US economy.

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: EMU Industrial Production, ECB Lagarde (Wednesday) – Germany Final Inflation Rate (Thursday) – EMU Balance of Trade (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 losing 0.02% at 0.9704 and a breach of the monthly low at 0.9669 (October 11) would target 0.9535 (2022 low September 28) en route to 0.9411 (weekly low June 17 2002). On the upside, the initial hurdle comes at 0.9999 (weekly high October 4) followed by 1.0050 (weekly high September 20) and finally 1.0197 (monthly high September 12).

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