EUR/USD regains the smile and retargets the parity level

• EUR/USD reclaims some ground lost following Tuesday’s pullback.
• The appetite for the risk complex puts the dollar under pressure.
• EMU Industrial Production, US Producer Prices will be next of note.

The European currency regains some balance and motivates EUR/USD to flirt once again with the psychological parity zone on Wednesday.

EUR/USD looks to data, dollar

EUR/USD manages to ignite some buying interest and regains the parity zone after the acute post-US CPI collapse sent the pair from the vicinity of 1.0200 to the 0.9970/65 band on Tuesday.

In fact, the better tone in the single currency comes in tandem with the improved appetite in the risk complex despite the firm conviction among investors that the Fed will continue its aggressive policy normalization and that even a full point rate raise is now on the table for the September gathering.

Data wise in the Euroland, Industrial Production in the whole bloc will be the salient event later in the European morning.

Across the ocean, usual weekly Mortgage Applications are due in the first turn seconded by the more relevant Producer Prices.

What to look for around EUR

EUR/USD appears to have met some decent contention around the 0.9970 area following Tuesday’s intense retracement.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

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 Industrial Production (Wednesday) – France Final Inflation Rate, EMU Balance of Trade (Thursday) – Italy, EMU Final Inflation rate (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, the pair is advancing 0.37% at 1.0003 and now faces the initial barrier at 1.0197 (monthly high September 12) followed by 1.0202 (August 17 high) and then 1.0325 (100-day SMA). On the flip side, the breakdown of 0.9955 (weekly low September 14) would target 0.9863 (2022 low September 6) en route to 0.9859 (December 2002 low).