EUR/USD climbs to 2-day peaks near 0.9980

• EUR/USD regains poise and now retargets the parity zone.
• Germany Factory Orders contracted 1.1% MoM in July.
• US ISM Non-Manufacturing takes centre stage later in the NA session.

The buying interest around the European currency picks up pace and lifts EUR/USD to the 0.9980 region on Tuesday.

EUR/USD looks bid on USD-selling

The current knee-jerk in the dollar allows EUR/USD to rebound from Monday’s new cycle lows in the 0.9880/75 band and shifts the focus once again to another test of the parity region.

In addition, the improved sentiment in the risk complex also collaborates with the pair’s rebound, which also looks underpinned by the uptick in the German 10y Bund yields.

In the meantime, the cautious trade is expected to return to the single currency as markets gets closer to the ECB event on Thursday. It is worth recalling that consensus among market participants sees the central bank raising the policy rate by 75 bps.

In the domestic calendar, German Factory Orders contracted at a monthly 1.1% and the Construction PMI ticked lower to 41.4 in August (from 43.7). Across the pond, the attention will be on the services sector amidst the releases of the final S&P Global Services PMI and the ISM Non-Manufacturing, both prints for the month of August.

What to look for around EUR

EUR/USD regains upside traction following the increased appetite for the risk-associated assets.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence. The latter, in the meantime, keeps closely following the prevailing debate around the size of the next interest rate hikes by both the ECB and the Federal Reserve.

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: Germany Construction PMI (Tuesday) – Flash EMU Q2 GDP Growth Rate (Wednesday) – ECB Interest Rate Decision, Fed Powell (Thursday) – Eurogroup Meeting, Emergency Energy Meeting (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 gaining 0.46% at 0.9972 and faces the next up barrier at 1.0090 (weekly high August 26) ahead of 1.0182 (55-day SMA) and then 1.0202 (August 17 high). On the flip side, a breach of 0.9877 (2022 low September 5) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low).