EURUSD breaks below parity to clinch 3-day lows near 0.9970

• EURUSD adds to Wednesday’s pullback in the sub-parity zone.
• Industrial Production in Italy disappointed expectations in September.
• All the attention will be on the release of US inflation figures.

Sellers now push harder and force EURUSD to breach the parity barrier and print new 3-day lows in the vicinity of 0.9970 on Thursday.

EURUSD focuses on US CPI

EURUSD adds to Wednesday’s pessimism and drops further to the 0.9975/70 band on the back of the persistent recovery in the greenback, which appears in turn underpinned by rising prudence among traders ahead of the release of US inflation figures measured by the CPI.

Also adding to the prevailing cautiousness, the final results of the US midterm elections still remain inconclusive, as well as who will control the Senate and the House.

The second downtick in a row in the pair also comes in contrast to the small recovery in the German 10-year bund yields, which regain some ground after two daily retracements in a row.

In the domestic calendar, Italian Industrial Production contracted 1.8% MoM in September and 0.5% from a year earlier.

In the US and other than the Inflation Rate, the usual weekly Claims are due along with the Monthly Budget Statement for the month of October and speeches by FOMC’s Harker, Logan, Mester and George.

What to look for around EUR

EURUSD comes under extra downside pressure and slips back below the parity zone with some conviction ahead of key US data releases on Thursday.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The recent decision by the Fed to hike rates and the likelihood of a tighter-for-longer stance now emerges as the main headwind for a sustainable recovery in the pair.

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: Italy Industrial Production (Thursday) – Germany Final Inflation Rate (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.

EURUSD levels to watch

So far, the pair is retreating 0.34% at 0.9974 and a breach of 0.9730 (monthly low November 3) would target 0.9704 (weekly low October 21) en route to 0.9631 (monthly low October 13). On the other hand, initial resistance comes at 1.0096 (monthly high November 8) seconded by 1.0197 (monthly high September 12) and finally 1.0368 (monthly high August 12).