EUR/USD flirts with 3-day highs near 1.1870

• EUR/USD re-tests the key resistance around 1.1870.
• The dollar remains on the defensive on risk-on mood.
• The Fed publishes its Monetary Policy Report later in the session.

The buying pressure in the European currency remains well and sound and now pushes EUR/USD back to the 1.1870 region, or 3-day highs.

EUR/USD extends the bounce off 1.1780

EUR/USD adds to the optimism seen in the second half of the week and now gains around a cent from fresh lows in the 1.1780 region (Wednesday/Thursday) to the current 1.1870 region.

Spot gained fresh buying interest on the back of dollar weakness, which is in turn underpinned by the invertors’ preference for the riskier assets.

Absent relevant releases in the euro docket, the largely anticipated results from the ECB’s strategy review (Thursday) and nothing new from Lagarde at her speech on Friday, the attention shifted to the ECB’s Accounts of the June meeting.

Indeed, many members favoured scaling back the asset purchase programme in light of the improvement in the outlook for growth and inflation. On the latter, long-term inflation expectations remain subdued in opinion of members, while they stressed the importance of looking through the transitory higher consumer prices.

The Accounts also noted that higher markets rates could render in tighter financing conditions.

What to look for around EUR

The recent strong pullback in EUR/USD appears to have met some decent contention around 1.1780 for the time being. Price action around spot, in the meantime, is expected to exclusively follow dollar dynamics, particularly after the latest FOMC gathering underpinned prospects of higher inflation and potential tapering before anticipated. Further out, support for the European currency comes in the form of auspicious results from fundamentals in the bloc coupled with higher morale, a strong rebound in the economic activity and the investors’ appetite for riskier assets.

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 0.19% at 1.1865 and faces the next up barrier at 1.1895 (weekly high Jul.6) followed by 1.1975 (weekly high Jun.25) and finally 1.2000 (200-day SMA). On the other hand, a breakdown of 1.1781 (monthly low Jul.7) would target 1.1762 (78.6% Fibo of the November-January rally) and route to 1.1704 (2021 low Mar.31).