EUR/USD appears depressed near 1.2130, focus on US data, yields

  • EUR/USD comes under pressure and returns to 1.2130.
  • The dollar bounces off lows on the back of higher yields.
  • US PCE takes centre stage later in the NA session.

Following recent tops, the single currency came under selling pressure and drags EUR/USD back to the mid-1.2100s at the end of the week.

EUR/USD weaker on USD-rebound, looks to US data

EUR/USD reverses two consecutive daily builds, including fresh multi-week highs around 1.2240 recorded on Thursday, and returns to the 1.2150 region on Friday.

The sharp and sudden pick up in yields of the US 10-year benchmark prompted investors to favour the greenback vs. extending the rally in the risk complex, at least in the very near-term.

In the meantime, the reflation trade stays as the almost exclusive driver for the price action in EUR/USD and the broader risk universe, helped by the firmer vaccine rollout in the Old Continent and the firm recovery in the global economy in the next months.

In the euro docket, France’s flash CPI is expected to contract 0.1% MoM in February, while Spanish consumer prices are seen contracting 0.6% from a month earlier. In addition, ECB’s Schnabel is due to speak, and the European Council will enter its final 2-day meeting.

Across the pond, all the attention will be on the inflation figures tracked by the PCE (the Fed’s preferred gauge) followed by Personal Income/Spending, flash Trade Balance results and the final print of the U-Mich index for the month of February.

What to look for around EUR

EUR/USD’s rally finally surpassed the 1.2200 barrier, although the move run out of steam in the 1.2240 region on Thursday. The underlying bullish sentiment in the euro remains under pressure for the time being amidst investors’ adjustment to potential US inflation and the subsequent increase in yields and the demand for the dollar. Looking at the medium/longer-run, the outlook for the pair remains constructive on the back of prospects of extra fiscal stimulus in the US, real interest rates favouring Europe vs. the US and hopes of a solid economic rebound in the next months.

Key events in Euroland this week: European Council meeting (Thursday and Friday). ECB’s Lagarde will participate in the G20 meeting of central bank governors and finance ministers on Friday.

Eminent issues on the back boiler: EUR appreciation could trigger ECB verbal intervention, always on inflation issues. EU Recovery Fund. Huge long positions in the speculative community.

EUR/USD levels to watch

At the moment, the index is losing 0.22% at 1.2140 and faces immediate contention at 1.2097 (21-day SMA) followed by 1.2023 (weekly low Feb.17) and finally 1.2016 (100-day SMA). On the upside, a breakout of 1.2243 (weekly high Dec.17) would target 1.2349 (2021 high Jan.6) en route to 1.2413 (monthly high Apr.17 2018).

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