EUR/USD: Bears remain in control around 0.9940 ahead of key data

• EUR/USD sheds further ground and revisits 0.9940/35.
• Germany Flash GDP Growth Rate comes in at 1.2% YoY in Q3.
• PCE, Personal Income/Spending, U-Mich Index due later in the NA session.

The selling bias persists around the European currency and drags EUR/USD back to the 0.9940/35 band at the end of the week.

EUR/USD now looks at data

EUR/USD drops to 3-day lows and extends the pessimism into the second half of the week amidst the continuation of the rebound in the greenback and the generalized loss of momentum in the risk-linked galaxy.

The recovery in the pair lies in contrast to the rebound in the German 10-year bund yields, which manage to regain the 2.05% hurdle following the recent drop to the sub-2.00% area.

In the meantime, investors continue to digest the dovish tone at the ECB meeting on Thursday, after the central bank hiked the refi rate by 75 bps, matching consensus. Staying with the ECB, board member Villeroy suggested that there is no obligation to raise rates by another 75 bps at the next gathering. In addition, his colleague Simkus added that inflation projections are expected to be increased in December.

On the euro docket, flash GDP results see the German economy expanding 1.2% YoY in Q3 and 0.3% QoQ. Additionally, advanced inflation figures in France see the CPI rising 6.2% in the year to October. Later in the session, preliminary figures in Germany are also due along with EMU’s Consumer Confidence and Economic Sentiment.

In the US, the focus of attention will be on the release of the PCE and Core PCE along with Personal Income/Spending, the final October Consumer Sentiment and Pending Home Sales.

What to look for around EUR

EUR/USD remains on the defensive and leaves the door open to further retracement to the 0.9900 neighbourhood in the near term.

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 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: France/Italy/Germany Flash Inflation Rate, German Preliminary Q3 GDP Growth Rate, EMU Final Consumer Confidence, Economic Sentiment

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 0.9936 and the breakdown of 0.9908 (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).