EUR/USD appears firmer and approaches 0.9900, looks to Lagarde

• EUR/USD adds to the positive start of the week near 0.9900.
• The dollar continues to shed ground amidst declining yields.
• ECB’s Lagarde participates in an event in Cyprus.

The optimism around the European currency remains well and sound and motivates EUR/USD to flirt with the boundaries of the key barrier at 0.9900 the figure on Tuesday.

EUR/USD up on risk-on mood, looks to Lagarde

EUR/USD adds to Monday’s uptick and approaches the 0.9900 region on the back of the continuation of the sell-off in the dollar and extra improvement in the risk-associated universe. The pair, therefore, enters the second consecutive week with gains after bottoming out near 0.9350 in late September.

The upbeat tone around the pair comes amidst further retracement in the German 10-year bund yields, which already tests the 1.80% region after hitting fresh multi-year peaks around 2.35% during last week.

In the docket, Producer Prices in the euro area will be the only release in the domestic calendar seconded by speeches by ECB’s A.Enria, L.De Guindos and C.Lagarde.

Across the Atlantic, Factory Orders will take centre stage, while FOMC’s Logan, Williams, Mester, Jefferson and Daly are all due to speak.

What to look for around EUR

EUR/USD keeps the strong recovery well and sound with the renewed target at the 0.9900 neighbourhood, always against the backdrop of the intense drop in the greenback.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The latter has been exacerbated further following the latest rate hike by the Fed and the persevering hawkish message from Powell and the rest of his rate-setters peers.

Furthermore, the 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 – adds to the sour sentiment around the euro

Key events in the euro area this week: Eurogroup Meeting, Germany, EMU Final Manufacturing PMI (Monday) – ECB Lagarde (Tuesday) – Germany Balance of Trade, EMU, Germany Final Services PMI (Wednesday) – Germany Construction PMI, EMU Retail Sales, ECB Accounts (Thursday) – Germany Retail Sales (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian post-elections developments. 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 gaining 0.47% at 0.9870 and the breakout of 1.0032 (55-day SMA) would target 1.0050 (weekly high September 20) en route to 1.0197 (monthly high September 12). On the other hand, the next support appears at 0.9535 (2022 low September 28) ahead of 0.9411 (weekly low June 17 2002) and finally 0.9386 (weekly low June 10 2002).