EUR/USD extends the weakness and approaches 0.9900 ahead of EMU CPI

• EUR/USD sheds further ground and trades close to 0.9900.
• Germany Retail Sales contracted less than expected in September.
• Flash EMU Q3 GDP, CPI next of relevance in the domestic docket.

Sellers remain in control of the sentiment surrounding the European currency and force EUR/USD to slip back to the vicinity of the 0.9900 neighbourhood at the beginning of the week.

EUR/USD looks to data, dollar dynamic

EUR/USD adds to the rejection from last week’s tops near 1.0100 and trades at shouting distance from the key support at 0.9900 on Monday, always on the back of the continuation of the robust bounce in the dollar.

Indeed, investors keep favouring the greenback in the current context of weakness in the risk-associated universe and in light of the upcoming FOMC gathering due on Wednesday. On the latter, the Federal Reserve is widely expected to raise the Fed Funds Target Range (FFTR) by 75 bps to 3.75%-4.00%.

Earlier in the domestic calendar Retail Sales in Germany expanded at a monthly 0.9% and contracted 0.9% in the year to September. Later, the focus of attention will be on the release of advanced Q3 GDP Growth Rate in the broader Euroland as well as preliminary inflation figures for te month of October.

What to look for around EUR

EUR/USD extends the leg lower and threatens to revisit the 0.9900 neighbourhood against the backdrop of persistence dollar strength.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The resurgence of speculation around a potential Fed’s pivot seems to have removed some strength from the latter, however.

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 fragile sentiment around the euro in the longer run.

Key events in the euro area this week: Germany Retail Sales, EMU Flash Q3 GDP Growth Rate, Inflation Rate (Monday) – Germany Balance of Trade, Unemployment Change, Unemployment Rate, Final Manufacturing PMI, EMU Final Manufacturing PMI (Wednesday) – EMU Unemployment Rate (Thursday) – EMU/Germany Final Services PMI, ECB Lagarde (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 0.36% at 0.9930 and the breakdown of 0.9905 (55-day SMA) would target 0.9704 (weekly low October 21) en route to 0.9631 (monthly low October 13). On the upside, there is an initial hurdle at 1.0093 (monthly high October 27) followed by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 10).