EUR/USD flirts with 3-day highs near 1.0770

The European currency picks up extra impulse and lifts EUR/USD to the area of 3-day highs around 1.0770 on Thursday.

EUR/USD remains supported around 1.0670

EUR/USD now sees some light at the end of the tunnel and manages to set aside five consecutive daily pullbacks, retargeting at the same time the 1.0800 neighbourhood amidst the renewed selling interest hovering around the dollar.

In fact, a more positive scenario for the risk-linked galaxy underpins the so far upside bias in the pair, which, however, still struggles to pick up a more convincing upside traction following last week’s monthly lows near 1.0670.

Additional legs for the euro came after advanced inflation figures in Germany showed a small uptick in the headline CPI for the month of January. Indeed, consumer prices are seen rising 8.7% YoY during last month and 1.0% vs. the previous month.

In the US calendar, the usual weekly Initial Claims will take centre stage later in the European afternoon.

What to look for around EUR

EUR/USD seems to have embarked on a decent recovery soon after bottoming out in the 1.0670 region earlier in the week, always in response to the loss of upside traction around the dollar.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB after the central bank delivered a 50 bps at its meeting last week.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.

Key events in the euro area this week: Germany Flash Inflation Rate (Thursday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. 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 gaining 0.44% at 1.0757 and is expected to meet the next up barrier at 1.1032 (2023 high February 2) followed by 1.1100 (round level) and finally 1.1184 (weekly high March 31 2022). On the flip side, a drop below 1.0674 (55-day SMA) would target 1.0669 (monthly low February 7) en route to 1.0481 (2023 low January 6).