EUR/USD comes under pressure near 1.0960 ahead of key EMU CPI

The European currency alternates gains with losses vs. the greenback and prompts EUR/USD to hover around the 1.0970/60 band on Tuesday.

EUR/USD focuses on EMU data, FOMC

Sellers remain in control of the sentiment surrounding the euro and kept EUR/USD on the defensive for the time being, all following the rejection from YTD peaks in levels just shy of 1.1100 the figure on April 26.

The so far inconclusive price action in spot comes in tandem with a modest uptick in the German 10-year Bund yields, which now fade part of the earlier advance to the area past 2.40%. Their US peers, in the meantime, leave behind Monday’s auspicious start of the week.

Moving forward, the 2-day FOMC meeting kicks in later on Tuesday, while the ECB will meet on Thursday. That said, both central banks are largely anticipated to hike rates by 25 bps, although a potential pause by the Fed following this meeting vs. speculation of extra hikes by the ECB in June and July could favour extra upside in spot in the short-term horizon.

In the domestic calendar, Retail Sales in Germany contracted 8.6% YoY in March, while final Manufacturing PMIs in Germany and the euro area came at 44.5 and 45.8, respectively, during last month.

Later in the session, the focus of attention will be on the publication of the preliminary inflation figures in the euro bloc. Across the ocean, Factory Orders and JOLTs Job Openings are also due later in the NA session.

What to look for around EUR

EUR/USD’s upside momentum keeps losing traction and flirts once again with the initial contention area near 1.0960.

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: Germany Retail Sales, Final Manufacturing PMI, EMU Flash Inflation Rate, Final Manufacturing PMI (Tuesday) – 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 losing 0.02% at 1.0970 and faces the next support at 1.0909 (weekly low April 17) seconded by 1.0831 (monthly low April 10) and finally 1.0788 (monthly low April 3). On the flip side, 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).