EUR/USD looks offered, extends the downside below parity

• The pair loses the grip and breaches parity once again.
• The dollar looks bid amidst higher US yields on Monday.
• ECB-speak, EMU Construction Output next on tap.

Sellers regain control around the European currency and drag EUR/USD back below the psychological parity zone at the beginning of the week.

EUR/USD faces next support at the 2022 low

EUR/USD so far reverses three consecutive daily builds and refocuses on the downside against the backdrop of the weak performance in the risk complex and fresh buying interest surrounding the dollar ahead of the interest rate decision by the Fed on Wednesday.

On the latter, the probability of a ¾ point rate hike hovers around the 80% as per CME Group’s Fed Watch Tool, while the likeliness of a 100 bps rate raise lost momentum as of late.

In the German debt market, the 10-year Bund yields extend the gradual multi-week rally and flirt with the 1.80% region so far.

In the euro docket, Construction Output in the broader Euroland will be the only release seconded by speeches by ECB’s E.Fernandez-Bollo, L.De Guindos and A.Enria. In the US, the NAHB index due followed by 3-month and 6-month Bill auctions.

What to look for around EUR

EUR/USD remains under pressure and breaks below the parity level following increasing cautiousness and dollar buying ahead of the FOMC gathering (Wednesday).

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: ECB Lagarde (Tuesday) – 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 losing 0.32% at 0.9979 and the breakdown of 0.9944 (weekly low September 16) would target 0.9863 (2022 low September 6) en route to 0.9859 (December 2002 low). On the other hand, the initial barrier emerges at 1.0197 (monthly high September 12) followed by 1.0202 (August 17 high) and then 1.0310 (100-day SMA).