• The euro hits session highs above 0.9800 after bouncing at 0.9720 lows.
• The common currency pares losses amid a broad-based USD weakness.
• EUR/USD seen retesting 0.9540 – ING.

The common currency has shrugged off the weakness observed last week to rally on Monday, amid an improved sentiment. The euro appreciates nearly 1% so far today bouncing up at 0.9720 area to hit session highs at 0.9820.

A higher appetite for risk is weighing on the USD

In the absence of any relevant macroeconomic data, dollar weakness seems the main reason behind the surprising euro recovery. The safe haven greenback is losing ground across the board with investors' sentiment boosted after the newly appointed British Finance Minister announced the U-turn on the mini-Budget Tax cuts.

The US Dollar Index has depreciated about 0.8% in its largest reversal of the last two weeks, retreating from last week's highs at 113.70 to test the support area at 112.00 at the time of writing.

From a wider perspective, however, the pair remains quite far from October’s peak at parity levels. Eurozone’s economy has relevant challenges ahead, with inflation at historic levels on the back of higher energy prices and with no solution in sight during the Ukrainian war, which are likely to hinder a sustained euro recovery.

EUR/USD seen retesting 0.9540 – ING

Currency analysts at ING are skeptical about the current EUR/USD rally, and see the pair resuming its downtrend: “The euro should remain heavily impacted by sterling’s swings in the near term, and here the correlation appears to be stronger on the downside i.e. the spillover from another sell-off in gilts would likely have an asymmetrically larger impact on the euro than the positive implications of a recovery in UK sentiment (…) “We still think that EUR/USD will test the 0.9540 September lows in the near-term, and extend a drop below that level by year-end.”

Technical levels to watch