EUR/USD looks weak, drops to multi-day lows near 1.0100

Sellers quickly returned to the European currency and dragged EUR/USD to fresh multi-session lows in the vicinity of 1.0100 on Tuesday.

EUR/USD offered ahead of FOMC

EUR/USD rapidly abandoned the area around 1.0250 to retreated nearly 15 cents after EU countries decided to reduce the gas consumption in the next winter, all following the decision by Russian giant Gazprom to cap the supply of gas to the old continent to around 20%.

The decision sparked recession fears in the euro area at the time when the IMF cut the growth prospects for 2023 and several major banks now see the region entering recession at some point in Q4.

Absent releases in the euro area, the US Consumer Confidence tracked by the Conference Board eased to 95.7 in July, while New Home Sales contracted 8.1% MoM in June, or .59M units. Earlier in the session, the FHFA’s House Price Index rose 1.4% in May from a month before.

What to look for around EUR

EUR/USD remains under pressure in the pre-FOMC and threatens to revisit the 1.0100 region amidst the sudden resumption of the demand for the greenback.

Renewed market chatter surrounding the likelihood of an economic slowdown in the euro area in the medium term seems to have resurfaced and weigh on the European currency ahead of the upcoming FOMC event on Wednesday.

In the meantime, the price action around the European currency closely follows increasing speculation of a probable recession in the euro area, dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

Key events in the euro area this week: Germany GfK Consumer Confidence (Wednesday) – EMU Final Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Thursday) – Germany Unemployment Change, Unemployment Rate, Flash Q2 GDP, EMU Flash Inflation Rate, Advanced Q2 GDP (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 monetary conditions. Performance of the economic recovery post-pandemic in the region. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is losing 0.84% at 1.0131 and faces initial contention at 1.0116 (weekly low July 26) seconded by 1.0000 (psychological level) and finally 0.9952 (2022 low July 14). On the upside, a breakout of 1.0278 (weekly high July 21) would target 1.0446 (55-day SMA) en route to 1.0615 (weekly high June 27).