EUR/USD looks firm and advances to 0.9740

• EUR/USD keeps the optimism unchanged above 0.9700.
• German 10-year bund yields hover around 2.35% on Tuesday.
• Italian Industrial Production surprised to the upside in August.

Buyers appear so far in control of the sentiment around the European currency and help EUR/USD to keep the trade above the key 0.9700 hurdle on Tuesday.

EUR/USD appears bid on USD-selling

The corrective downside in the greenback allows EUR/USD to finally halt the recent sharp sell-off and rebound from earlier lows in the 0.9670/65 band to the 0.9740 zone, where some initial resistance has turned up.

Nothing new around the pair other than the recent pick-up in the risk aversion in response to renewed geopolitical concerns stemming from the war in Ukraine, which was eventually behind the persistent strength in the dollar in combination with expectations of a large rate hike by the Fed at the November gathering.

In addition, the uptick in spot comes in tandem with a marginal advance in the German 10-year bund yields vs. the corrective decline in US yields across the curve.

In the domestic calendar, Italian Industrial Production expanded 2.3% MoM in August and 2.9% from a year earlier. In the US data space, the NFIB Business Optimism Index rose to 92.1 in September and the IBD/TIPP Economic Optimism gauge is due later along with speeches from FOMC’s Harker and Mester.

What to look for around EUR

EUR/USD’s leg lower seems to have met some initial contention in the 0.9670/65 band so far this week.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Following latest results from key economic indicators, the latter is expected to extend further amidst the ongoing resilience of the US economy.

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: EMU Industrial Production, ECB Lagarde (Wednesday) – Germany Final Inflation Rate (Thursday) – EMU Balance of Trade (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. 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 0.12% at 0.9709 and the surpass of 0.9999 (weekly high October 4) would target 1.0050 (weekly high September 20) en route to 1.0197 (monthly high September 12). On the other hand, there is an immediate support 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).