EUR/USD: Sellers remain in control around the parity level

EUR/USD now comes under further downside pressure and prints new daily lows in the vicinity of 0.9970 on Thursday, where some interim contention seems to have emerged.

EUR/USD weaker post-ECB rate hike

EUR/USD accelerates the daily decline from tops near 1.0100 and revisits the 0.9970 region as Chair C.Lagarde’s press conference is under way.

Indeed, Chairwoman Lagarde emphasized the progress made by the central bank in withdrawing accommodation. The Council see the economic activity in the region slowing significantly in Q3, with the crisis around gas prices magnifying headwinds.

Lagarde noted that the ongoing tight monetary policy results in a weaker global growth, which could lead to higher unemployment in the future.

Regarding inflation, Lagarde reiterated that high energy prices remain almost exclusively behind the ongoing elevated inflation, while the depreciation of the euro also added to the current inflationary pressures. Currently, inflation risks are tilted to the upside vs. the downside risks seen around the economic outlook.

Lagarde also reiterated that the decision on interest rates will remain data dependent and will be made on a meeting-by-meeting basis.

In addition, Lagarde said the anti-fragmentation tool, the TPI, was not discussed at today’s meeting.

Other than the ECB event, US data releases were also noteworthy: Following another revision of the GDP Growth Rate, US economy is now expected to have expanded 2.6% YoY in the July-September period, Durable Goods Orders expanded at a monthly 0.4% in September and Initial Jobless Claims went up by 217K in the week to October 22.

What to look for around EUR

EUR/USD’s upside momentum meets an initial hurdle around 1.0100 and triggered a deep knee-jerk that was later exacerbated following the ECB decision to hike the policy rate by 75 bps, as largely anticipated.

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 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 retreating 0.84% at 0.9997 and the breakdown of 0.9972 (weekly low October 21) would target 0.9704 (weekly low October 21) en route to 0.9631 (monthly low October 13). On the upside, there is an initial hurdle at 1.0093 (monthly high October 27) followed by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 10).