EUR/USD steadies near 0.9700 even as risk-off mood favors DXY strength

• EUR/USD rests on 12-day-old horizontal support after four-day downtrend.
• Uncertainty over Germany’s support joint EU debt to battle energy crisis favored sellers at the latest.
• Fears of recession intensify amid escalating Russian shelling in Ukraine, hawkish Fedspeak and downbeat EU data.
• Return of full markets and comments from Fed/ECB policymakers will be crucial to determine the downside move.

EUR/USD bears take a breather around 0.9700 as a short-term horizontal support tests further downside after a four-day south-run to early Tuesday in Asia. Even so, the risk-aversion wave and fears that the recession is imminent for the old continent, not to forget the hawkish Fedspeak, keep the major currency pair sellers hopeful.

Recently, Germany’s rejection of the previous market chatters that Berlin backs the European Union (EU) joint debt issuance to battle the energy crisis, favored by Bloomberg, seemed to have flared the risk-off mood and weighed on the EUR/USD prices. However, the absence of major data/events and mixed comments from the Fed policymakers appeared testing the bears of late.

That said, “US can lower inflation relatively quickly without recession or large increase in unemployment,” said Chicago Fed President Charles Evans on Monday. The policymaker also added that the Fed needs to "carefully and judiciously" navigate to a "reasonably restrictive" policy rate. It should be noted that Federal Reserve Vice Chair Lael Brainard made the case for cautious rate hikes for the future, per the Wall Street Journal (WSJ).

On the contrary, “The European Central Bank (ECB) will have to take significant interest step again in October,” policymaker Klaas Knot said on Monday, adding that it's “too early to say how big step needs to be.” Further, European Central Bank (ECB) Governing Council member Mario Centeno said, “Normalization of monetary policy is absolutely necessary and desired”.

Elsewhere, the Eurozone Sentix Investor Confidence index deteriorated to -38.3 in October from -31.8 in September vs. -34.7 expected. The index fell to its lowest level since March 2020 while signaling a deep recession.

Other than the uncertainty over the debt issuance and central bankers’ comments, not to forget the downbeat data, hawkish Fed bets and Friday’s strong US jobs report also drowned the EUR/USD prices of late. On the same line could be the recently escalating Russian shelling on Kyiv. However, holidays in the US, Japan and Canada might have challenged the sellers.

That said, the US Dollar Index (DXY) rose to the one-week high during the four-day uptrend amid the risk-aversion wave.

Moving on, a slew of ECB and the Fed policymakers are up for speaking and hence may entertain the EUR/USD pair traders during the full markets. Even so, the odds favoring the bearish moves are high.

Technical analysis

With the oversold RSI challenging the EUR/USD bears, the quote struggles between a two-week-old horizontal support area and a weekly resistance line, respectively near 0.9680-70 and 0.9750 in that order.