EUR/USD: Bulls regain the upper hand above 0.9700

• EUR/USD starts the week with a smile and beyond 0.9700.
• The risk-on sentiment underpins the upside bias in the pair.
• ECB-speak, US Empire State Index come next in the docket.

The single currency leaves behind Friday’s negative price action and motivates EUR/USD to regain the initiative and reclaim the area above 0.9700 the figure on Monday.

EUR/USD up on risk-on mood, weak dollar

EUR/USD advances with decent gains on Monday on the back of the resumption of the selling pressure around the greenback and the broad-based upbeat mood in the risk-associated universe.

Some extra support for the euro also comes after rumours said that ECB Board member P.Lane will advocate for a 75 bps rate hike at the next event at the end of the month.

Still around the ECB, Vice-President De Guindos did not rule out a technical recession in the euro area, although he later soothed his comments by saying that any recession will not be excessively intense.

In the domestic calendar, final inflation figures in Italy saw consumer prices rise 0.3% MoM in September and 8.9% from a year earlier. In addition, ECB’s P.Lane is due to speak later, while the Monthly Budget Statement and the MY Empire State Manufacturing Index will take centre stage across the ocean.

What to look for around EUR

EUR/USD recovers part of the ground lost at the end of last week and seems refocused on the area of recent peaks in the 0.9800 neighbourhood.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Following latest results from key economic indicators, the latter is expected to extend further amidst the ongoing resilience of the US economy.

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: EMU, Germany ZEW Economic Sentiment (Tuesday) – EMU Final Inflation Rate, European Council Meeting (Thursday) - European Council Meeting, EMU Flash Consumer Confidence (Friday).

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 gaining 0.13% at 0.9730 and expects the next resistance at 0.9808 (weekly high October 13) followed by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20). On the other hand, a breach of 0.9631 (monthly low October 13) would target 0.9535 (2022 low September 28) en route to 0.9411 (weekly low June 17 2002).