• EUR/USD loses the grip and retreats to 0.9630.
• US CPI rose more than expected in September.
• The probability of a 75 bps rate hike by the Fed picks up pace.

The single currency quickly abandoned the area of daily highs vs. the dollar and forced EUR/USD to drop to fresh 2-week lows near 0.9630 on Thursday.

EUR/USD sold-off on higher-than-expected CPI

The selling pressure in EUR/USD accelerates after the key US inflation figures came in on the strong side in September, with the headline CPI rising 8.2% YoY and 0.4% MoM. Same trend showed the Core CPI after rising 6.6% vs. the same month of 2021 and 0.6% from a month earlier.

Further data releases showed the usual weekly Claims rose by 228K in the week to October 8, also missing expectations.

Extra strength in the buck came from the jump in US yields across the curve, while the now increased probability of a ¾ point hike by the Fed at the November 2 gathering also collaborated with the decline in spot.

What to look for around EUR

EUR/USD now looks offered and opens the door to a deeper retracement in the short-term horizon, always on the back of the robust sentiment around the dollar.

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: Germany Final Inflation Rate (Thursday) – EMU Balance of Trade (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 down 0.43% at 0.9659 and a drop below 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 up barrier emerges at 0.9999 (weekly high October 4) followed by 1.0050 (weekly high September 20) and finally 1.0197 (monthly high September 12).