EUR/USD climbs to daily highs around 1.2210, dollar deflates

The optimism has returned to the single currency and now pushes EUR/USD back above 1.2200 the figure, clinching at the same time new daily highs.

EUR/USD in recovery-mode

EUR/USD continues to reverse Wednesday’s retracement and it has already regained the 1.2200 mark in a context dominated by investors’ appetite for the riskier assets, while US yields extend the corrective downside after recent tops.

The pair, along with the rest of the riskier assets, manages to leave behind the post-FOMC bearish note and resumes the rally, which remains well in place since the beginning of April.

Earlier in the European docket, German Producer Prices rose at a monthly 0.8% in April and 5.2% from a year earlier, while the Current Account surplus widened to €31B in March (from €13.3B).

In the US calendar, Initial Claims rose less than expected by 444K WoW and the Philly Fed index came in short of estimates at 31.5 for the month of May.

What to look for around EUR

EUR/USD met decent resistance in the 1.2250 region earlier in the week, extending the bounce off last week’s lows in the mid-1.2000s and always on the back of the strong bounce in yields of the German 10-year Bund and the generalized upbeat tone in the risk complex. The sustained rebound in the pair also comes in response to the investors’ shift to the improved growth outlook in the Old Continent now that the vaccine campaign appears to have gained some serious pace and solid results from key fundamentals pari passu with the surging morale in the bloc.

Key events in the euro area this week: German/EMU flash May PMIs, advanced Consumer Confidence (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the vaccine rollout. Probable political effervescence around the EU Recovery Fund. German elections.

EUR/USD levels to watch

So far, spot is gaining 0.34% at 1.2211 and faces the next hurdle at 1.2245 (monthly high May 19) followed by 1.2300 (round level) and finally 1.2349 (2021 high Jan.6). On the flip side, a break below 1.2051 (weekly low May 13) would target 1.1985 (monthly low May 5) en route to 1.1960 (200-day SMA).