EURUSD turns positive and targets the parity zone

• EURUSD meets support around the 0.9900 zone on Monday.
• German 10-year bund yields extend the move to multi-day highs.
• Germany Construction PMI improves to 43.8 in October.

EURUSD adds to Friday’s advance and flirts with the 0.9970 region at the beginning of the week.

EURUSD supported around 0.9900

The initial knee-jerk in EURUSD meets support in the 0.9900 region so far on Monday and manages to flirt with the area of recent tops around 0.9970/80 band amidst further loss of momentum in the greenback.

The appetite for the risk complex remains well in place so far as investors keep assessing the latest results from the US jobs report (Friday), while the greenback remains under pressure and motivates the USD Index (DXY) to give away further ground.

Data wise in the domestic calendar, Germany’s Construction PMI improved to 43.8 in October (from 41.8). Later, ECB’s Panetta is due to speak. Across the pond, Consumer Credit Change will be the sole release ahead of speeches by FOMC’s Collins and Mester.

What to look for around EUR

EURUSD extends Friday’s recovery and seems on its way to challenge the key parity zone sooner rather than later.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The recent decision by the Fed to hike rates and the likelihood of a tighter-for-longer stance now emerges as the main headwind for a sustainable recovery in the pair (if it was any at all).

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 fragile sentiment around the euro in the longer run.

Key events in the euro area this week: Eurogroup Meeting, Germany Construction PMI (Monday) – EMU Retail Sales (Tuesday) – Italy Industrial Production (Thursday) – Germany Final Inflation Rate (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.

EURUSD levels to watch

So far, the pair is gaining 0.18% at 0.9975 and faces the next resistance at 1.0000 (psychological level) seconded by 1.0093 (monthly high October 27) and finally 1.0197 (monthly high September 12). On the other hand, a breach of 0.9704 (weekly low October 21) would target 0.9631 (monthly low October 13) en route to 0.9535 (2022 low September 28).