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EUR/USD regains traction slowly and firmly, targets 1.0600 ahead of ZEW


10 May 2022

EUR/USD extends the advance to the vicinity of 1.0600. Germany, EMU Economic Sentiment comes next in the docket. A slew of Fed-speakers should keep the attention on the dollar. The single currency extends its gradual march north and motivates EUR/USD to test the proximity of the 1.0600 mark on turnaround Tuesday. EUR/USD so far advances for the third session in a row on Tuesday and approaches the key 1.0600 neighbourhood amidst some loss of upside momentum in the greenback.

The uptick in the pair comes amidst some weakness in German 10y bund yields, which retest the 1.08% area following Monday’s peaks around 1.20%, an area last visited back in July 2014. In the US money markets, yields seem be attempt a mild recovery after Monday’s knee-jerk.

In the domestic calendar, the main publication will be the Economic Sentiment tracked by the ZEW Institute in both Germany and the broader Euroland. Across the pond, the dollar will be under scrutiny following the speeches by Fed’s rate-setters Williams, Bostic, Waller, Kashkari and Mester.

What to look for around EUR

EUR/USD manages to put further distance from recent lows in the sub-1.0500 region. The outlook for the pair still points to the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany, EMU Economic Sentiment (Tuesday) – Final Germany Inflation Rate, ECB Lagarde (Wednesday) – EMU Industrial Production (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. 

EUR/USD levels to watch

So far, spot is gaining 0.10% at 1.0568 and faces the next up barrier at 1.0641 (weekly high May 5) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the other hand, a break below 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).

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