EUR/USD clinches monthly peaks near 1.0770 on USD selling

The optimism around the European currency remains well in place in the second half of the week and lifts EUR/USD to fresh monthly tops around 1.0770 on Friday.

EUR/USD boosted by ECB, risk appetite

EUR/USD remains well en route to close the second consecutive week with gains, gaining around four cents since the 2022 lows around 1.0350 recorded a couple of weeks ago.

Increased hawkishness from most ECB’s rate-setters coupled with persistent weakness around the greenback and the firmer appetite for riskier assets have all been underpinning the sharp recovery in the pair as of late, against the backdrop of muted price action in the money markets on both sides of the ocean.

There is nothing on the euro calendar on Friday which should leave all the attention to the US data space, where the PCE and Core PCE will be in the centre of the debate seconded by Trade Balance, Personal Income/Spending and the final reading of the Consumer Sentiment.

What to look for around EUR

The intense selling bias in the dollar puts EUR/USD on track to challenge the 1.0800 region in the short-term horizon.

Despite the pair’s upside impulse, the broader outlook for the single currency remains negative for the time being. As usual, price action in spot should reflect dollar dynamics, geopolitical concerns and the Fed-ECB divergence.

Occasional pockets of strength in the single currency, however, should appear reinforced by speculation the ECB could raise rates at some point in the summer, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro area. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is gaining 0.16% at 1.0738 and faces the immediate hurdle at 1.0765 (monthly high May 24) followed by 1.0771 (55-day SMA) and finally 1.0936 (weekly high April 21). On the other hand, a breach of 1.0459 (low May 18) would target 1.0348 (2022 low May 13) en route to 1.0340 (2017 low January 3 2017).