EUR/USD regains the smile and flirts with 0.9800, focus on US NFP

• EUR/USD bounces off earlier lows in the vicinity of 0.9760.
• Germany Retail Sales contracted 4.6% in the year to August.
• Markets’ attention will be on the release of US Payrolls.

Following an early drop to the 0.9765/60 region, EUR/USD manages to regain some upside traction and return to the 0.9800 neighbourhood on Friday.

EUR/USD now looks to the US calendar

EUR/USD attempts a mild recovery against the backdrop of a knee-jerk in the dollar, while market participants remain prudent in light of the upcoming release of the US Nonfarm Payrolls for the month of September (250K exp).

The small bounce in spot also comes along another positive move in the German 10-year bund yields, which already retake the 2.15% region amidst the third consecutive daily advance.

Earlier in the session, Germany’s Retail Sales contracted 4.6% YoY in August and Industrial Production dropped 0.8% vs. the previous month.

What to look for around EUR

EUR/USD appears to have met a decent contention in the 0.9760 zone so far on Friday and ahead of key data releases in the US docket.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The latter has been exacerbated further following the latest rate hike by the Fed and the persevering hawkish message from Powell and the rest of his rate-setters peers.

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: Germany Retail Sales. Industrial Production (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian post-elections developments. 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 gaining 0.11% at 0.9801 and the breakout of 0.9999 (weekly high October 4) would target 1.0013 (55-day SMA) en route to 1.0050 (weekly high September 20). On the flip side, the initial support comes at 0.9535 (2022 low September 28) ahead of 0.9411 (weekly low June 17 2002) and finally 0.9386 (weekly low June 10 2002).