The Euro continues to hold above parity for now as markets look to key data releases this week from both sides of “the pond”. The recent USD advance has cooled slightly following the large move that came as a result of Fed Chair Jerome Powell’s Jackson Hole remarks. With the Fed adamant on reigning in inflation to their 2% target, the ball now moves to the European Central Bank’s (ECB) court. Rumors are now circulating of a potential 75 basis point hike at the ECB’s September policy meeting, something that seemed impossible just a few months ago. This gives markets something new to digest, as traders may now have to balance a more aggressive ECB with dwindling growth prospects across the Eurozone.

As inflation continues to remain hot across the Eurozone, economic data may continue to be the catalysts for near-term price action. Should inflation continue to come in hot, bets for 75 basis points next week from the ECB could gain steam. This potentially may buoy the Euro against the Greenback, giving the recent rally more room to run.

Despite the recent bounce, the energy crisis facing the continent continues to be an anchor on any longer-run upside potential. Just yesterday, European Commission President Ursula von der Leyen called for “emergency intervention” in energy markets to aid struggling households and businesses. As winter approaches for the EU, traders may begin to focus more on European energy stockpiles.

EUROPEAN ECONOMIC CALENDAR

Courtesy of the DailyFX Economic Calendar

With EURUSD trading back above parity, the question now becomes whether this is a rally to fade or one to ride. Resistance remains overhead at the 0.236 retrace of the Oct. ’00 to May ’08 advance. With this clear barrier overhead as well as numerous fundamental headwinds, any boost of larger-than-expected rate hikes may only provide short-term bounces. At best, an aggressive ECB into year-end may just buoy the currency before growth prospects really begin to drag on EURUSD. Should weakness across the continent develop as we head into autumn, the support zone that has developed around 0.9920 may come under renewed pressure.

EURUSD 1 HOUR CHART

Chart created with TradingView

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