EUR/USD appears consolidative near parity amidst risk-off mood

• EUR/USD returns to the negative territory and approaches parity… again.
• The European Commission released its Economic Forecasts.
• Across the pond, Initial Claims and Producer Prices will take centre stage.

Sellers return to the single currency and drag EUR/USD back to the proximity of the parity level on Thursday.

EUR/USD weaker on USD-buying, recession talks

EUR/USD’s “dead cat bounce” on Wednesday ran out of steam around 1.0120, prompting sellers to eventually return to the market and expose the pair to keep challenging the key parity zone.

Indeed, the higher-than-expected US inflation figures on Wednesday prompted investors to start pricing in a probable 100 bps rate hike at the FOMC event in late July, which morphed into fresh oxygen to both the buck and US yields.

According to CME Group’s FedWatch Tool, the probability of a full point raise at the July 27 gathering is now at around 76% from just near 7% a month ago. A 75 bps hike sees its chances reduced to nearly 24% so far.

In the domestic calendar, the updated Economic Forecasts from the European Commission now sees the euro area expanding 2.6% this year (from 2.7%) and 1.4% in 2023 (from 2.3%). Inflation, in the meantime, is expected at 7.6% in 2022 and 4.0% in the next year, up from 6.1% and 2.7%, respectively.

Later in the NA session, Initial Claims are due seconded by Producer Prices.

What to look for around EUR

Bears maintain the EUR/USD under heavy pressure and the acceleration of the downside should open the door to another potential breach of the parity level any time soon.

In the meantime, the price action around the single currency continues to follow increasing speculation of a probable recession in the euro area, dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

Key events in the euro area this week: EMU Balance of Trade (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is down 0.28% at 1.0024 and faces the next contention at 1.9997 (2022 low July 13) seconded by 0.9859 (low December 2002) and finally 0.9685 (low October 2002). On the upside, a breakout of 1.0498 (55-day SMA) would target 1.0615 (weekly high June 27) en route to 1.0773 (monthly high June 9).