EUR/USD treads water just below parity amidst alternating risk trends

• EUR/USD adds to Wednesday small advance just below parity.
• Risk appetite trends lack direction so far on Thursday.
• EMU Balance of Trade, US Retail Sales, Philly Index next on tap.

The single currency sticks to the bid bias and motivates EUR/USD to trade on the positive note near the key parity zone on Thursday.

EUR/USD focuses on US data

EUR/USD advances for the second session in a row and looks to revert the negative performance so far this week, particularly following Tuesday’s post-CPI slump from the vicinity of 1.0200 to the 0.9970 region.

In the meantime, market chatter continues to gyrate around the next rate hike by the Fed at next week’s event, with consensus positioned for a 75 bps rate hike despite a full-point rate raise remaining on the table.

In the domestic calendar, final Inflation Rate in France saw the CPI rise 0.5% MoM and 5.9% YoY in August, while the trade deficit in the euro area widened to €34B in July. Across the pond, Retail Sales and the Philly Fed Index will take centre stage seconded by Industrial Production, Initial Claims and Business Inventories.

What to look for around EUR

EUR/USD regains ground at a snail pace and looks to leave behind the parity level in a more sustainable fashion.

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: 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 0.06% at 0.9985 and now faces the initial barrier at 1.0197 (monthly high September 12) followed by 1.0202 (August 17 high) and then 1.0320 (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).