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EUR/USD struggles for direction near 1.1900

3 September 2021

EUR/USD extends the march north to 1.1880/85. EMU Retail Sales contracted 2.3% MoM, gained 3.1% YoY in July. Markets’ focus remains on the US labour market report. The optimism around the European currency stays unabated for yet another session and lifts EUR/USD to fresh tops in the proximity of 1.1890 on Friday. EUR/USD advances uninterruptedly since last Friday pari passu with the sharp leg lower in the greenback and the strong improvement in the risk-associated universe, all in response to Powell’s cautious tone at his speech at Jackson Hole.

The recovery in the pair picked up extra pace following the ADP disappointment on Wednesday (which hints at a potential fiasco at Friday’s Payrolls figures) as well as unexpected hawkish comments from ECB Board members De Guindos, Lane, Knot and Holzmann, who opened the door to a potential debate on tapering at next week’s ECB event.

In the domestic calendar, Retail Sales in the euro area contracted at a monthly 2.3% in July and expanded 3.1% over the last twelve months. Earlier, the final August Services PMI in Germany and the Euroland came in at 60.8 and 59.0, respectively. Additional data across the pond will see Markit’s final Services PMI for the month of August and the ISM Non-Manufacturing during the same period.

What to look for around EUR

The upside momentum in EUR/USD takes another step to re-visit the 1.1900 neighbourhood on Friday, always supported by the generalized selling pressure in the dollar. Looking at the broader picture, the ongoing recovery in EUR/USD from YTD lows (August 20) tracks the improvement in the risk complex as well as the intense corrective downside in the buck. However, and despite the recent hawkish tilt from ECB-speakers regarding scaling back the bank’s stimulus programme sooner rather than later, consensus seems to be shaping up around the likeliness that Lagarde could talk down these tapering hopes, which in turn carry the potential to cap the upside in the pair.

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the Delta variant of the coronavirus and pace of the vaccination campaign. Probable political effervescence around the EU Recovery Fund. German elections in September could bring some political effervescence to the scenario. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency.

EUR/USD levels to watch

So far, spot is losing 0.02% at 1.1872 and a break below 1.18155 (55-day SMA) would target 1.1663 (2021 low Aug.20) en route to 1.1612 (monthly low Oct.20 2020). On the upside, the next resistance lines up at 1.1884 (monthly high Sep.3) followed by 1.1908 (monthly high Jul.30) and finally 1.1951 (100-day SMA).



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