EUR/USD extends the recovery to the 1.2150 area

The single currency extends the optimism in the first half of the week and lifts EUR/USD back to the 1.2150 region on turnaround Tuesday.

EUR/USD looks to dollar, data

EUR/USD so far advances for the second session in a row on Tuesday, although the bullish move appears to have met solid resistance in the mid-1.2100s for the time being.

In the meantime, the consolidative mood is expected to remain in place in the markets ahead of the FOMC event on Wednesday, where the US inflation and economic prospects are predicted to take centre stage.

In Europe, in the meantime, optimism on the economic recovery and the gradual return to the normal life post-pandemic continue to drive the sentiment among market participants, despite yields of the German 10-year reference remain depressed around -0.26%.

In the domestic docket, the German final CPI rose 0.5% MoM and 2.5% YoY in May, while the trade surplus in the region shrank to €10.9 billion in April.

Across the pond, the focus of attention will be on the Retail Sales followed by Producer Prices, the NY Empire State index, Industrial/Manufacturing Production, Business Inventories, the NAHB index, TIC Flows and the weekly API’s report.

What to look for around EUR

EUR/USD manages to bounce of recent lows in the sub-1.2100 area, although it is forecast to remain somewhat vigilant ahead of the Fed event later this week and while market participants keep digesting the latest US inflation figures. In the meantime, support from the European currency comes in the form of auspicious results from fundamentals in the bloc coupled with higher morale, prospects of a strong rebound in the economic activity and the investors’ appetite for riskier assets.

Key events in the euro area this week: Final May Core CPI (Thursday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the vaccine rollout. Probable political effervescence around the EU Recovery Fund. German elections. Investors’ shift to European equities.

EUR/USD levels to watch

So far, spot is gaining 0.04% at 1.2124 and faces the next up barrier at 1.2266 (monthly high May 25) followed by 1.2300 (round level) and finally 1.2349 (2021 high Jan.6). On the downside, a breakdown of 1.2064 (23.6% Fibo retracement of the November-January rally) would target 1.2051 (weekly low May 13) en route to 1.1985 (monthly low May 5).