• EUR/USD reaches new multi-week highs past 1.0700.
  • The dollar remains on the back footing amidst increasing risk-on trade.
  • ECB’s Lagarde sees rates in the positive territory in Q3.

Further optimism among traders pushes EUR/USD to new 4-week highs in the 1.0735/40 band on Tuesday.

EUR/USD boosted by sentiment, Lagarde

EUR/USD extends Monday’s advance to the area well north of 1.0700 the figure on turnaround Tuesday, once again sustained by the strong improvement in the risk-linked galaxy as well as further hawkish comments from Chairwoman Lagarde.

On the latter, Lagarde insisted that rates could be in the positive territory in Q3 and she discarded a recession scenario in the euro bloc for the time being.

Extra legs to the single currency came after the flash Manufacturing PMI surpassed estimates in Germany and is now seen at 54.7 in May. Results from France and the broader Euroland, instead, were short of expectations at 54.5 and 54.4, respectively.

The US docket will include the advanced Manufacturing/Services PMIs for the month of May as well as New Home Sales and welcoming notes from Chief Powell at an event in Las Vegas

What to look for around EUR

Extra recovery in EUR/USD trespasses the 1.0700 mark on Tuesday, recording at the same time new multi-week highs.

Despite the pair’s current upside impulse, the broader outlook for the single currency remains in the negative territory 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.

Key events in the euro area this week: Flash EMU, Germany PMIs, ECB Lagarde (Tuesday) – Germany Final Q1 GDP, GfK Consumer Confidence, ECB Lagarde (Wednesday).

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 up 0.22 at 1.0711 and faces the next hurdle at 1.0736 (monthly high May 24) followed by 1.0789 (55-day SMA) and finally 1.0936 (weekly high April 21). On the downside, a breach of 1.0348 (2022 low May 13) would target 1.0340 (2017 low January 3 2017) en route to 1.0300 (round level).

 

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