EUR/USD extends the recovery well past 1.1800 ahead of Powell


  • EUR/USD retakes 1.18 and above following Tuesday’s drop.
  • US Producer Prices surprised to the upside in June.
  • Powell testifies to the Congress later in the session.

The upside pressure in the European currency remains well and sound and lifts EUR/USD to fresh tops in the 1.1820/25 band.

EUR/USD remains supported around 1.1780/70

EUR/USD regains the smile after Tuesday’s CPI-induced selloff to levels well below 1.1800 the figure.

Spot manages well to bounce off earlier monthly lows in the 1.1770 area, as the greenback sheds some ground on the back of declining US yields and investors’ preference for the risk complex.

In the meantime, Chairman Powell suggested that inflation is seen high in the next months, although he expects it to lose traction. He also sees further improvement in the labour market, although the “substantial further progress” remains to be seen.

Powell will testify to the Congress on the Monetary Policy Report later in the session.

In the euro data space, Industrial Production in the broader Euroland contracted 1.0% MoM in May and expanded at an annualized 20.5%, both prints coming in short of estimates. In addition, final Spanish CPI rose 0.5% MoM in June and 2.7% over the last twelve months.

What to look for around EUR

EUR/USD returns to the area of recent lows near 1.1780, just above the key 2020-2021 support line. Price action around spot, in the meantime, is expected to exclusively hinge on dollar dynamics, particularly as investors continue to adjust to the Fed’s hawkish message, prospects of higher inflation in the US and potential QE tapering earlier than anticipated. On the euro side of the equation, support for the European currency in the form of auspicious results from fundamentals in the bloc now appears somewhat mitigated considering recent data, although the investors’ morale remains high amidst the persistent optimism surrounding a strong rebound in the economic activity in the second half of the year.

Key events in the euro area this week: EMU Final June CPI (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the Delta variant of the coronavirus and pace of the vaccination campaign. Probable political effervescence around the EU Recovery Fund. German elections. Investors’ shift to European equities in the wake of the pandemic.

EUR/USD levels to watch

So far, spot is gaining 0.38% at 1.1821 and faces the next hurdle at 1.1895 (weekly high Jul.6) followed by 1.1975 (weekly high Jun.25) and finally 1.2001 (200-day SMA). On the flip side, a breakdown of 1.1771 (monthly low Jul.14) would target 1.1762 (78.6% Fibo of the November-January rally) and route to 1.1704 (2021 low Mar.31).

 

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