- EUR/USD fades part of Wednesday’s advance and challenges 1.1300.
- The dollar regains ground sustained on higher US yields.
- German advanced inflation figures next of relevance in the docket.
The selling bias has returned to the single currency and now encourages EUR/USD to re-test the 1.1300 neighbourhood on Thursday.
EUR/USD looks to German data, US yields
EUR/USD appears side-lined in the lower end of the weekly range and near the key support at 1.1300 the figure in the second half of the week, always at the mercy of dollar dynamics and the broad risk appetite trends.
The pessimism around the pair re-emerged on Thursday amidst renewed buying pressure in the dollar, which was particularly exacerbated after the FOMC Minutes (Wednesday) showed a hawkish tilt, opening the door to a potential start of the Fed’s normalization sooner than anticipated.
In the meantime, there is so far no meaningful reaction in the FX space to the relentless advance of the pandemic, with the main focus on the highly contagious omicron variant, as governments have ruled out imposing restrictions on the economic activity for the time being.
Back to the euro docket, the salient event will be the release of preliminary inflation figures in Germany for the month of December seconded by Producer Prices in the broader Euroland. Earlier, and still in Germany, Factory Orders expanded at a monthly 3.7% in November. Across the pond, Initial Claims, Factory Orders, Trade Balance and the ISM Non-Manufacturing are all due later in the NA session.
What to look for around EUR
EUR/USD met quite decent contention in the 1.1270 zone so far in the first week of the new year. In the meantime, price action around spot continues to track the performance of the greenback as well as the policy divergence between the ECB vs. the Federal Reserve and the response to the persistent elevated inflation on both sides of the Atlantic. On another front, the unabated progress of the coronavirus pandemic remains as the exclusive factor to look at when it comes to the economic growth prospects and investors’ morale.
Key events in the euro area this week: Germany Advanced December Inflation Rate (Thursday) – EMU Advanced December Inflation Rate (Friday).
Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. ECB stance/potential reaction to the persistent elevated inflation in the region. ECB tapering speculation/rate path. Presidential elections in France.
EUR/USD levels to watch
So far, spot is losing 0.03% at 1.1307 and faces the next up barrier at 1.1386 (monthly high November 30) followed by 1.1464 (weekly high Nov.15) and finally 1.1520 (200-week SMA). On the other hand, a break below 1.1272 (weekly low Jan.4) would target 1.1221 (weekly low Dec.15) en route to 1.1186 (2021 low Nov.24).
