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26 Oct 2022

EUR/USD surpasses parity and rose to 5-week tops

  • EUR/USD gathers extra steam above the parity zone.
  • The dollar remains well on the defensive as risk appetite improves.
  • Consumer Confidence in France surprises to the upside in October.

The optimism around the European currency remains well and sound for yet another session and this time lifts EUR/USD to the area beyond the parity level for the first time in the last five weeks on Wednesday.

EUR/USD boosted by dollar weakness

EUR/USD advances for the 5th consecutive session and trades in multi-week highs on the back of the acute sell-off in the greenback, which forced the USD Index (DXY) to challenge October lows in the vicinity of the 110.00 support.

Adding to the decline in the dollar comes another pullback in US yields across the curve in line with the negative price action seen so far in the German 10-year bund, which sheds ground for the 4th session in a row.

The renewed upbeat tone in the risk-associated universe comes in tandem with rising speculation that the Fed might slow the pace of its normalization process in the next months amidst some loss of momentum in some key US fundamentals.

In the domestic calendar, Consumer Confidence in France improved to 82 for the month of October in what was the sole release in the calendar on Wednesday.

Across the ocean, weekly Mortgage Applications tracked by MBA come next seconded by flash trade balance figures and New Home Sales.

What to look for around EUR

EUR/USD keeps pushing higher and already leaves behind the psychological parity region with decent conviction amidst the renewed and marked offered stance in 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. 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: France Consumer Confidence (Tuesday) -Germany GfK Consumer Confidence, Italy Consumer Confidence, ECB Interest Rate Decision, ECB Lagarde (Thursday) – France/Italy/Germany Flash Inflation Rate, Germany Preliminary Q3 GDP Growth Rate, EMU Final Consumer Confidence, Economic Sentiment

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 0.62% at 1.0023 and faces the next up barrier at 1.0050 (weekly high September 20) followed by 1.0092 (100-day SMA) and finally 1.0197 (monthly high September 12). On the flip side, the breakdown of 0.9631 (monthly low October 13) would target 0.9535 (2022 low September 28) en route to 0.9411 (weekly low June 17 2002).

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