EUR/USD climbs to weekly highs past 1.1040, focus remains on Fed

The single currency extends the bid bias and lifts EUR/USD to fresh weekly highs in the 1.1045/50 band on Wednesday.

EUR/USD looks strong ahead of Fed

EUR/USD advances for the second session in a row and looks to consolidate the recent breakout of the psychological 1.1000 hurdle on the back of further weakness surrounding the greenback ahead of the FOMC gathering due later in the NA session.

On this key event, investors already priced in a 25 bps rate hike, although the subsequent press conference by Chair J. Powell will be in the centre of the debate following the Committee’s interest rate decision.

Moving forward, the pair is seen facing increasing volatility in light of the key ECB meeting on Thursday, where the central bank is also seen raising the policy rate by 25 bps, although there is a small possibility of a larger hike (50 bps?).

In the domestic calendar, the Unemployment Rate in the broader Euroland ticked lower to 6.5% in March.

Across the ocean, the ADP report and weekly Mortgage Applications will also be in the limelight.

What to look for around EUR

EUR/USD’s upside momentum keeps gathering pace and now shifts the attention to the 2023 high near 1.1100 the figure amidst persistent dollar weakness.

Meanwhile, price action around the single currency should continue to closely follow dollar dynamics, as well as the Fed-ECB divergence when it comes to the banks’ intentions regarding the potential next moves in interest rates.

Moving forward, hawkish ECB-speak continue to favour further rate hikes, although this view appears in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: EMU Unemployment Rate (Wednesday) – Germany Final Services PMI, EMU Final Services PMI, ECB Meeting, ECB Lagarde press conference (Thursday) – Germany Construction PMI, EMU Retail Sales.

Eminent issues on the back boiler: Continuation (or not) of the ECB hiking cycle. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is up 0.40% at 1.1042 and the surpass of 1.1095 (2023 high April 26) would target 1.1100 (round level) en route to 1.1184 (weekly high March 21 2022). On the other hand, the next support aligns at 1.0909 (weekly low April 17) seconded by 1.0831 (monthly low April 10) and finally 1.0788 (monthly low April 3).