EUR/USD clinches 2-day highs around 1.1850

The optimism around the European currency stays well and sound in the second half of the week and underpins the EUR/USD move to 2-day highs in the 1.1840/50 band.

EUR/USD stays bid after ECB event

EUR/USD advances for the second session in a row on Friday and manages well to extend the bounce off weekly lows in the 1.1800 neighbourhood, always on the back of the retracement in the dollar and the generalized upbeat mood in the risk complex.

In fact, the single currency trades on a firmer note following the dovish “recalibration” of the ECB’s PEPP and auspicious revisions of the central bank’s forecasts for both inflation and GDP. In addition, Chairwoman Lagarde suggested that the timing of the end of the emergency stimulus programme as well as other policy guidance issues will be discussed at the December meeting.

In the euro docket, German final inflation figures showed the headline CPI came in flat on a monthly basis in August and rose 3.9% from a year earlier. Inflation tracked by the broader HICP rose 0.1% MoM and 3.4% YoY. Later in the session, ECB’s Lagarde is due to speak and the EurGroup meeting is expected to kick in.

Across the pond, August’s Producer Prices and Wholesale Inventories for the month of July will be the only releases.

What to look for around EUR

EUR/USD seems to have met dip buyers in the boundaries of the 1.1800 neighbourhood earlier in the week and manages to attempt a decent bounce to the 1.1840 so far on Friday, as investors continue to digest the recent ECB event. The pair remains supported by the persistent risk-on mood as well as alleviated concerns over the slowdown in the economic recovery.

Key events in the euro area this week: Final German CPI, EuroGroup meeting (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the Delta variant of the coronavirus and pace of the vaccination campaign. Probable political effervescence around the EU Recovery Fund. German elections in September could bring some political jitters to the scenario. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is gaining 0.21% at 1.1849 and faces the next up barrier at 1.1909 (monthly high Sep.3) followed by 1.1941 (100-day SMA) and finally 1.2000 (psychological level). On the other hand, a break below 1.1802 (weekly low Sep.8) would target 1.1788 (20-day SMA) en route to 1.1663 (2021 low Aug.20).