EUR/USD looks bid around 1.1350, dollar remains on the defensive
|- EUR/USD extends the upside to the 1.1370 region.
- Final December EMU CPI, ECB Accounts next on tap.
- US Initial Claims, Philly Fed Index come next in the NA session.
In the wake of the opening bell in Euroland on Thursday, EUR/USD pushed to 2-day highs in the 1.1370s on sustained buying interest in the single currency.
EUR/USD underpinned by risk-on trade
EUR/USD is seen posting gains for the second straight session so far in the second half of the week, always in response to the renewed offered stance in the US dollar, which in turn remains under pressure following the decline in US yields.
The early rate cut by the Chinese central bank (PBoC) seems to have bolstered the appetite for riskier assets, motivating spot to extend gains for another session. The PBoC reduced the 1Y Loan Prime Rate (LPR) to 3.7% (from 3.8%) and the 5Y LPR to 4.6% (from 4.65%). The bank’s move on the latter was the first one since April 2020.
US yields keep correcting lower and weighing further on the greenback, at a time when market participants seem to be pricing in a steadily higher chance of an interest rate hike by the Fed at the March meeting.
On the domestic calendar, the final December inflation figures in the euro area come next, while the ECB will publish its Account of the last meeting. Earlier, Germany’s Producer Prices rose 5% MoM during December and 24.2% over the last twelve months.
Data wise across the Atlantic, weekly Claims and the Philly Fed manufacturing gauge will be in the limelight, seconded by Existing Home Sales.
What to look for around EUR
EUR/USD came under pressure after hitting new YTD highs in the 1.1480 region earlier in the month, finding some contention in the low-1.1300s so far this week. The Fed-ECB policy divergence and the performance of yields are expected to keep driving the price action around the pair for the time being. ECB officials have been quite vocal lately and now acknowledge that high inflation could last longer in the euro area, sparking at the same time, fresh speculation regarding a move on rates by the central bank by the end of 2022. On another front, the unabated advance of the coronavirus pandemic remains as the exclusive factor to look at when it comes to economic growth prospects and investors’ morale in the region.
Key events in the euro area this week: EMU Final December CPI, ECB Accounts (Thursday) - ECB Lagarde, EC’s Flash Consumer Confidence (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. Italy elects President of the Republic in late January. Presidential elections in France in April.
EUR/USD levels to watch
So far, spot is gaining 0.07% at 1.1350 and faces the next up barrier at 1.1482 (2022 high Jan.14) followed by 1.1485 (100-day SMA) and finally 1.1510 (200-week SMA). On the other hand, a break below 1.1314 (weekly low Jan.14) would target 1.1272 (2022 low Jan.4) en route to 1.1221 (monthly low Dec.15 2021).
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.