EUR/USD loses the grip and turns negative below parity on Lagarde

• EUR/USD abandons the area of recent peaks near 1.0030.
• The ECB’s projections are quite upbeat when it comes to growth.
• Future policy decisions by the ECB remain data dependent.

Sellers seem to be regaining control around the European currency and prompt EUR/USD to surrender initial gains and slip back below parity as Lagarde’s presser is under way.

EUR/USD looks offered, Lagarde fails to surprise markets

After climbing as high as the 1.0030 region, or multi-day highs, EUR/USD could not stick to those gains and sparked a corrective move back below the parity zone.

The move lower in spot followed Chairwoman C.Lagarde’s press conference after she reiterated that future policy decisions will remain data dependent and on a meeting-by-meeting basis. Lagarde acknowledged that the labour market remains strong and weaker global demand continued to weigh on growth.

She noted that the weaker euro also collaborates with the elevated inflation as well as supply bottlenecks. Still on inflation, Lagarde suggested that food and energy costs could remain higher than expected at the time when a pick-up in inflation expectations warrant monitoring.

Regarding Thursday’s rate hike, Lagarde declined to comment whether the next interest rate raise will also be of 75 bps, adding that this is not the norm. She also suggested that the neutral rate is higher.

In light of the recent depreciation of the euro, Lagarde reiterated the central bank does not target the exchange rate.

What to look for around EUR

EUR/USD now sinks well below the parity level after the C.Lagarde fails to meet bulls’ expectations at the ECB event on Thursday.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

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: ECB Interest Rate Decision, Lagarde press conference (Thursday) – Eurogroup Meeting, Emergency Energy Meeting (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, the pair is losing 0.65% at 0.9936 and a drop below 0.9863 (2022 low September 6) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low). On the other hand, the next resistance aligns at 1.0090 (weekly high August 26) ahead of 1.0161 (55-day SMA) and then 1.0202 (August 17 high).