EUR/USD remains offered and plummets to 0.9880 prior to the Fed

• EUR/USD loses further momentum and breaches 0.9900.
• The FOMC event will be the salient event later in the NA session.
• Focus will also be on Powell and fresh economic projections.

Sellers continue to dictate the mood around the European currency and force EUR/USD to break below the 0.9900 mark to print new 2-week lows.

EUR/USD weaker ahead of the Fed, Powell

EUR/USD adds to Tuesday’s losses and slips back to the sub-0.9900 region for the first time since early September against the backdrop of the continuation of the upside pressure in the dollar.

Indeed, the sentiment around the greenback gathered extra pace on Wednesday and pushed the USD Index (DXY) to new 2-decade tops near 110.90 as investors continue to take positions ahead of the FOMC event due in the European evening.

The daily retracement in spot also comes in tandem with a knee-jerk in yields on both sides of the Atlantic following Tuesday’s fresh highs. It is worth recalling that the German 10-year Bund yields rose above 1.95% for the first time since January 2014, while its American counterpart also traded in levels last seen in February 2011 well past 3.50%.

The European calendar is empty on Wednesday, whereas weekly MBA Mortgage Applications and Existing Home Sales are due across the pond apart from the FOMC gathering.

What to look for around EUR

EUR/USD extends further the corrective decline to the area below 0.9900 ahead of the interest rate decision by the Federal Reserve. In the meantime, the size and extension of a potential deeper pullback – or rebound – is expected to be determined by developments from the FOMC event later on Wednesday.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns 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: Flash Consumer Confidence (Thursday) – EMU, Germany Flash Manufacturing/Services PMI (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 retreating 0.62% at 0.9907 and a breach of 0.9884 (weekly low September 21) would target 0.9863 (2022 low September 6) en route to 0.9859 (December 2002 low). On the other hand, the initial hurdle comes at 1.0091 (55-day SMA) seconded by 1.0197 (monthly high September 12) and finally 1.0297 (100-day SMA).