EUR/USD loses momentum and puts parity to the test, looks at EMU CPI

• EUR/USD gives away part of the earlier advance to 1.0045/50 band.
• Germany labour market report, EMU flash CPI next of note.
• US ADP report will take centre stage later in the NA session.

Alternating trends in the risk complex keeps dictating the price action in EUR/USD, which now puts the parity zone under some downside pressure.

EUR/USD keeps the attention on EMU inflation

EUR/USD fades the initial optimism following the improvement in the sentiment surrounding the risk complex, which was recently propped up by better-than-expected Chinese NBS Manufacturing PMI for the current month (49.4 act).

The persistent selling bias in the greenback has been also collaborating with the recent bounce in the pair amidst current speculation over the size of the next interest rate hikes by both the Federal Reserve and the ECB in September.

Later in the euro area, the German labour market report is due seconded by flash inflation figures in the Euroland for the month of August. Across the Atlantic, weekly MBA Mortgage Applications, the ADP report and the speech by FOMC’s L.Mester should also keep investors entertained later in the day.

What to look for around EUR

EUR/USD continues to edge higher on the back of the renewed offered bias in the greenback as well as the broad-based improvement in the risk-linked galaxy.

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 0.03% at 1.0007 and the breach of 0.9899 (2022 low August 23) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2022 low). On the other hand, the next up barrier comes at 1.0090 (weekly high August 26) seconded by 1.0202 (high August 17) and finally 1.0223 (55-day SMA).