EUR/USD extends the advance north of the parity level

• EUR/USD confirms the positive start of the week above parity.
• Germany preliminary inflation figures next on tap later in the euro docket.
• The US Consumer Confidence will be in the limelight across the pond.

The single currency adds to the auspicious start of the week and lifts EUR/USD further north the psychological parity level on turnaround Tuesday.

EUR/USD up on USD-selling, looks to data

EUR/USD is up for the second session in a row and continues to capitalize the renewed selling pressure hurting the greenback, which saw the US Dollar Index (DXY) print new 20-year peaks around 109.50 early on Monday, just to give away those gains afterwards.

The pair embarked on a corrective upside and reclaimed the area above the key parity level, as investors appear to have already digested the hawkish tilt from Powell’s message at the Jackson Hole Symposium on Friday.

The recovery in spot comes amidst a weak performance of the German 10y Bund yields, which retreats from Monday’s multi-week highs around 1.55%.

In the domestic calendar, the final EMU Consumer Confidence came at -24.9 and the Economic Sentiment at 97.6, both prints for the month of August. Later in the session, the advanced inflation figures in Germany will also take centre stage, whereas the Consumer Confidence tracked by the Conference Board will be the salient event in the US docket.

What to look for around EUR

EUR/USD continues to edge higher on the back of the renewed offered bias in the greenback.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence. However, potential shifts to a more hawkish stance from ECB’s policy makers regarding the bank’s rate path could be a source of strength for the euro.

On the negatives for the single currency emerge the so far 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.

Key events in the euro area this week: EMU Final Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Tuesday) – France Flash Inflation Rate, Italy Flash Inflation Rate, EMU Flash Inflation Rate, Germany Unemployment Change, Unemployment Rate (Wednesday) – Germany Retail Sales, Final Manufacturing PMI, EMU Final Manufacturing PMI, EMU Unemployment Rate (Thursday) – Germany Balance of Trade (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. 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, spot is gaining 0.49% at 1.0043 and the next hurdle comes at 1.0090 (weekly high August 26) seconded by 1.0202 (high August 17) and finally 1.0231 (55-day SMA). On the other hand, the breach of 0.9899 (2022 low August 23) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2022 low).