EUR/USD: Bulls remain in control above 1.0400

The buying pressure remains well and sound around the shared currency and motivates EUR/USD to extend the uptick beyond the 1.0400 mark with some conviction.

EUR/USD: Outlook shifted to bullish?

EUR/USD so far advances for the fourth consecutive session on Friday and looks to consolidate the recent breakout of the 1.0400 barrier as well as the critical 200-day SMA.

On the latter, it is worth noting that the pair has traded below the 200-day SMA since mid-June 2021. A close above this key region (November 24) should shift the pair’s outlook to constructive and therefore allow for extra gains in the short-term horizon.

The better tone in the risk complex also accompanies the move higher in spot, while auspicious results from the German calendar also add to the optimism around the currency.

Indeed, final GDP figures saw the German economy expand 1.3% YoY in the July-September period and 0.4% vs. the previous quarter. In addition, December’s Consumer Confidence tracked by GfK improved a tad to -40.2 (from -41.9).

What to look for around EUR

EUR/USD remains firm and manages well to keep the trade above the 1.0400 hurdle despite some recovery in the dollar and alternating risk appetite trends.

In the meantime, the European currency is expected to closely follow dollar dynamics, geopolitical concerns and the Fed-ECB divergence. In addition, markets repricing of a potential pivot in the Fed’s policy remains the exclusive driver of the pair’s price action for the time being.

Back to the euro area, the increasing speculation of a potential recession in the region - which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals – emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: Germany Final Q3 GDP Growth Rate, GfK Consumer Confidence (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.16% at 1.0427 and faces the next up barrier at 1.0481 (monthly high November 15) ahead of 1.0500 (round level) and finally 1.0614 (weekly high June 27). On the flip side, a breach of 1.0222 (weekly low November 21) would target 1.0029 (100-day SMA) en route to 0.9935 (low November 10).