• EUR/USD edges higher on Friday and climbs to the parity mark amid modest USD weakness.
• Worries about an energy crisis in Europe should act as a headwind for the euro and cap gains.
• Hawkish Fed expectations might help limit the USD losses ahead of Fed Chair Powell’s speech.

The EUR/USD pair edges higher on the last day of the week and moves back above the parity mark during the first half of the European session. The intraday uptick was sponsored by the emergence of some US dollar selling, though lacks bullish conviction amid worries about a deeper economic downturn in the Eurozone.

The greenback struggles to preserve its modest intraday gains and turns lower for the second successive day on Friday, which turns out to be a key factor lending support to the EUR/USD pair. The USD downtick could be solely attributed to some repositioning trade ahead of Fed Chair Jerome Powell's speech at the Jackson Hole Symposium, due later during the early North American session. That said, a softer risk tone, along with hawkish Fed expectations, could act as a tailwind for the buck.

The overnight optimism led by China's latest stimulus measures fizzles out rather quickly amid growing recession fears. Furthermore, economic headwinds stemming from the recent COVID-19 lockdowns in China temper investors' appetite for riskier assets, which is evident from a weaker sentiment around the equity markets. Apart from this, growing acceptance that the US central bank will stick to its policy tightening path should continue to limit any deeper USD downfall ahead of the key event risk.

The overnight hawkish comments by Fed officials reaffirmed bets for further interest rate hikes by the Fed. Policymakers, however, reserved their judgment on the size of the rate increase at the September FOMC policy meeting. Hence, investors will closely scrutinize Powell's remarks for clues about a 75 bps Fed rate hike move in September. This, in turn, will play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for the EUR/USD pair.

In the meantime, concerns about an extreme energy crisis in Europe, which could drag the region's economy faster and deeper into recession, could act as a headwind for the shared currency. This suggests that the path of least resistance for the EUR/USD pair is to the downside. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a bottom near the 0.9900 mark, or a two-decade low touched earlier this week.

Technical levels to watch