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EUR/USD keeps the bid bias unchanged near 1.0860

  • EUR/USD extends the rebound to the 1.0860 region.
  • Germany’s Producer Prices surprised to the upside in December.
  • ECB Lagarde will speak again at the WEF in Davos.

The optimism around the European currency remains well in place for another session and encourages EUR/USD to retest the 1.0860 zone at the end of the week.

EUR/USD looks at Lagarde, risk trends

EUR/USD advances for the third consecutive session and revisits the 1.0860 area amidst alternating risk appetite trends and humble gains in the greenback.

Indeed, the appetite for the risk complex appears somewhat subdued amidst the mild bid bias in the dollar and rising yields on both sides of the ocean on Friday.

Earlier in the session Producer Prices in Germany contracted 0.4% MoM in December and rose 21.6% over the last twelve months. Later, ECB Chairwoman C.Lagarde will participate in a panel discussion on “Global Economic Outlook: Is this the End of an era?” at the World Economic Forum in Davos.

In the NA session, Existing Home Sales for the month of December are due followed by speeches by Philly Fed P.Harker (voter, hawk) and FOMC C.Waller (permanent voter, centrist).

What to look for around EUR

EUR/USD reclaims the area beyond the 1.0800 mark in a context dominated by the absence of clear direction in the global markets on Friday.

Price action around the European currency should continue to closely follow dollar dynamics, as well as the impact of the energy crisis on the euro bloc and the Fed-ECB divergence.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: ECB Lagarde (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst diminishing probability of a recession in the region. Impact of the war in Ukraine and the protracted energy crisis on the bloc’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.12% at 1.0841 and faces the next up barrier at 1.0887 (monthly high January 18) followed by 1.0900 (round level) and finally 1.0936 (weekly high April 21 2022). On the flip side, the breakdown of 1.0766 (weekly low January 17) would target 1.0529 (55-day SMA) en route to 1.0481 (monthly low January 6).

Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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