- EUR/USD gives away part of the recent advance to 1.1670.
- The recovery in the dollar weighs on the pair midweek.
- Final September EMU CPI came in at 3.4% YoY, 0.5% MoM.
The single currency comes under some pressure and prompts EUR/USD to recede from recent tops and revisit the 1.1620/15 band on Wednesday.
EUR/USD looks to dollar, risk trends
EUR/USD now sheds some ground and reverses at the same time two consecutive daily advances, including new monthly peaks near 1.1670 recorded on Tuesday.
The greenback regains the smile and sparks the current knee-jerk in the risk-linked universe, lifting the US Dollar Index (DXY) back to the vicinity of the 94.00 barrier in response to the move higher in US yields.
On Tuesday, several ECB Board members defended the need for further accommodation in the region’s monetary conditions, while stressing the persistent slack in the economy, the low level of the core inflation and the little chance of a move on rates by the central bank during the next year.
In the domestic docket, the Current Account surplus shrank to €17.6B in August, while final inflation figures for the broader Euroland in September showed the headline CPI rising 0.5% MoM and 3.4% YoY, while the Core CPI rose 1.9%, all prints matching the preliminary readings.
Across the pond, the weekly MBA Mortgage Applications will be the only release ahead of the EIA’s report on crude oil inventories and the speech by FOMC’s R.Quarles.
What to look for around EUR
EUR/USD advanced further and clinched fresh October peaks near 1.1670 on Tuesday. While the improvement in the sentiment surrounding the risk complex lent extra wings to the par, price action is expected to keep looking to dollar dynamics for the time being, where tapering chatter remains well in centre stage. In the meantime, the idea that elevated inflation could last longer coupled with the loss of momentum in the economic recovery in the region, as per some weakness observed in key fundamentals, are seen pouring cold water over investors’ optimism as well as bullish attempts in the European currency.
Key events in the euro area this week: Final EMU CPI (Wednesday) – Preliminary PMIs in the euro zone (Friday).
Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Sustainability of the pick-up in inflation figures. Probable political effervescence around the EU Recovery Fund. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the euro. ECB tapering speculations.
EUR/USD levels to watch
So far, spot is losing 0.04% at 1.1627 and faces the next up barrier at 1.1669 (monthly high Oct.19) followed by 1.1714 (55-day SMA) and finally 1.1755 (weekly high Sep.22). On the other hand, a break below 1.1571 (low Oct.18) would target 1.1524 (2021 low Oct.12) en route to 1.1495 (high Mar.9 2020).
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