EUR/USD: Upside falters around 0.9870 ahead of EMU CPI

• EUR/USD loses momentum after hitting the 0.9870/80 band.
• Final EMU Inflation Rate for the month of September comes next.
• US housing data, Fed’s Beige Book next of note across the pond.

The optimism around the risk complex and the European currency appears somewhat dwindled on Wednesday, with EUR/USD giving away part of the weekly advance and revisiting the 0.9820 region, or 2-day lows.

EUR/USD looks to data, dollar

Sellers appear to have regained the upper hand and now put EUR/USD under some pressure following two consecutive daily advances. The return of the selling bias seems to have been triggered by the inability of spot to quickly leave behind the area of weekly tops in the 0.9870/80 band.

On the opposite side of the road, the dollar regains some upside traction and motivates the USD Index (DXY) to extend the march north past the 112.00 barrier amidst the firm recovery in US yields across the curve. In Germany, the 10-year bund yields also edge up and extend at the same time the consolidative theme in the upper end of the range and close to multi-year peaks.

In the domestic calendar, the final inflation figures in the euro zone are due later in what will be the sole release this side of the Atlantic. In the NA session, MBA Mortgage Applications are due in the first turn seconded by Housing Starts and Building Permits while the Fed’s Beige Book will close the daily docket.

What to look for around EUR

EUR/USD meets some selling bias after faltering once again in the 0.9870 region on Wednesday.

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 Final Inflation Rate, European Council Meeting (Thursday) - European Council Meeting, EMU Flash Consumer Confidence (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 retreating 0.27% at 0.9827 and a breach of 0.9631 (monthly low October 13) would target 0.9535 (2022 low September 28) en route to 0.9411 (weekly low June 17 2002). On the flip side, the next resistance aligns at 0.9875 (weekly high October 18) followed by 0.9999 (monthly high October 4) and finally 1.0050 (weekly high September 20).