• EUR/USD extends the corrective decline to the mid-0.9700s.
• The dollar remains well bid in the wake of the Fed’s rate hike.
• EMU Unemployment Rate stayed unchanged in September.

EUR/USD accelerates its losses and revisits the 0.9750 region, or 2-week lows, on Thursday.

EUR/USD weaker post-FOMC

EUR/USD retreats for the fourth consecutive session and revisits levels last seen in late October around 0.97050 on the back of the persevering upside momentum in the greenback, which was exacerbated following the FOMC event on Wednesday.

Indeed, the pair corrected sharply lower after climbing to the 0.9975/80 band on Wednesday soon after the FOMC statement showed a dovish tilt after the Fed hike rates by 75 bps for the fourth straight meeting.

However, that upside was abruptly put to an end after Chair Powell surprised investors with a hawkish message at his press conference, stressing that the ultimate terminal rate is expected to be higher than anticipated, at the time when he deemed as premature any attempt to slow the pace of the tightening cycle.

In the German debt market, the 10-year bund yields climb to multi-day highs past 2.25%, in line with the equally marked uptick in their US peers.

In the domestic calendar, the Unemployment Rate in the broader Euroland held steady at 6.6% in September. In the US docket, the ISM Non-Manufacturing will take centre stage seconded by Factory Orders, trade balance figures and Initial Jobless Claims.

What to look for around EUR

EUR/USD intensifies its move lower for yet another session after the hawkish message from Chair Powell dented any hopes of the imminence of a pivot in the Fed’s policy.

In the meantime, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. The recent decision by the Fed to hike rates and the likelihood of a tighter-for-longer stance now emerges as the main headwind for a sustainable recovery in the pair (if it was any at all).

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: EMU Unemployment Rate (Thursday) – EMU/Germany Final Services PMI, ECB Lagarde (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 losing 0.62% at 0.9754 and a breach of 0.9704 (weekly low October 21) would target 0.9631 (monthly low October 13) en route to 0.9535 (2022 low September 28). On the flip side, the next up barrier emerges at 0.9975 (weekly high November 2) seconded by 1.0093 (monthly high October 27) and finally 1.0197 (monthly high September 12).