EUR/USD: Bears keep the pressure around 1.0430

The single currency remains under pressure and motivates EUR/USD to navigate in the lower end of the range around 1.0430 on Thursday.

EUR/USD looks to data, risk trends

EUR/USD remains offered and extend the leg lower after being rejected from the 1.0615 region earlier in the week. The corrective downside in the pair comes in response to the resurgence of the risk aversion sentiment and the resumption of the buying bias in the greenback.

In addition, the decline in the German 10y Bund yields - now approaching the 1.40% zone – also collaborates with the sour mood around the European currency on Thursday.

Further selling hurt the euro after the inaction seen in Chair Lagarde in recent comments, as she only reiterated the bank’s intention to raise rates by 25 bps next month, while further rate hikes would hinge on the progress of domestic fundamentals.

Earlier in Germany, Retail Sales contracted 3.6% in the year to May, the Unemployment Rate ticked higher to 5.3% and the Unemployment Change increased by 133K persons, both prints for the month of June.

Across the ocean, the publication of inflation figures measured by the PCE will take centre stage seconded by usual Initial Claims and Personal Income/spending.

What to look for around EUR

EUR/USD faces the re-emergence of the risk-off mood and the subsequent drop to the sub-1.0500 area so far this week.

In the meantime, the single currency continues to closely follow news from the ECB Forum in Portugal as well as any developments surrounding the bank’s plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area 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 Retail Sales, Unemployment Change, Unemployment Rate. EMU Unemployment Rate, ECB Lagarde (Thursday) – EMU, Germany Final Manufacturing PMI, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is retreating 0.11% at 1.0427 and faces immediate contention at 1.0358 (monthly low June 15) followed by 1.0348 (2022 low May 13) and finally 1.0300 (psychological level). On the upside, a break above 1.0615 (weekly high June 27) would target 1.0773 (monthly high June 9) en route to 1.0786 (monthly high May 30).