The single currency adds to Monday’s small gains and motivates EUR/USD to re-visit the 1.1830 region on turnaround Tuesday. EUR/USD advances for the second session in a row and extends the optimism in the first half of the week on the back of the loss of buying interest in the dollar and the cautious stance from traders ahead of significant data releases in the US calendar. The better note in the euro remains supported by the sharp bounce in yields of the German 10-year Bund to the -0.30% area, levels last seen back in mid-July, and in the US 10-year note to levels closer to 1.35%.
Minor releases in the euro docket saw the final Spanish CPI rising 0.5% MoM and 3.3% YoY in August, while the HICP rose 0.4% MoM and 3.3% over the last twelve months.
Later in the NA session, investors will closely follow the publication of inflation figures in the US tracked by the CPI, with consensus expecting headline prices to rise 5.3% YoY and core prices to rise 4.2% from a year earlier.
What to look for around EUR
EUR/USD managed to close Monday’s session with marginal gains and now edges higher to the 1.1830 area amidst a steady dollar and higher yields. With the ECB’S dovish “recalibration” now in the rear-view mirror, investors now seem to have shifted the attention back to inflation fears and the progress of the Delta variant, which, coupled with the Fed’s taper speculations, are expected to cap the upside potential in spot for the time being.
Key events in the euro area this week: Industrial Production (Wednesday) – Balance of Trade (Thursday) – EMU Final August CPI (Friday).
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 jitters to the scenario. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency. ECB tapering speculations.
EUR/USD levels to watch
So far, spot is gaining 0.10% at 1.1822 and faces the next up barrier at 1.1909 (monthly high Sep.3) followed by 1.1935 (100-day SMA) and finally 1.2000 (psychological level). On the other hand, a break below 1.1770 (weekly low Sep.13) would target 1.1704 (monthly low Mar.31) en route to 1.1663 (2021 low Aug.20).