EUR/USD keeps the upside bias and retargets 1.0600

Investors keep the optimism around the European currency well in place and encourage EUR/USD to approach once again to the 1.0600 neighbourhood on turnaround Tuesday.

EUR/USD focuses on ECB, data

EUR/USD prints gains for the third consecutive session on Tuesday and remains en route to challenge the 1.0600 mark and beyond in the very near term, always on the back of the intense offered stance in the US dollar.

Daily gains in the pair are so far bolstered by the equally positive performance of the German 10y bund yields, which extend the bounce to new 3-day highs near the 1.65% level.

The upbeat mood in the pair remains underpinned by the persistent bid bias in the broader risk complex amidst dollar weakness and higher US yields across the curve. In addition, hawkish comments from Board member Kazaks advocating for a 50 bps rate hike at the September meeting seem to have also lent legs to the pair so far.

Later in the session, ECB Lagarde and other rate-setters (Lane, Panetta) are also due to speak at the ECB Forum in Sintra. Earlier in the euro docket, Germany’s Consumer Confidence tracked by GfK worsened a tad to -27.4 for the month of July (from -26.2).

Across the pond, the Conference Board’s Consumer Confidence will be the salient event seconded by flash trade balance figures and house prices measured by the FHFA’s index.

What to look for around EUR

EUR/USD regained composure and pierced the 1.0600 mark amidst further improvement in the risk appetite trend so far this week. A close above this level, however, remains elusive for the time being.

In the meantime, the single currency continues to closely follow any developments surrounding the ECB and its plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: ECB Forum on Central Banking, Germany G7 Summit, ECB Lagarde, Germany GfK Consumer Confidence (Tuesday) - ECB Forum on Central Banking, EMU Final Consumer Confidence, EMU Economic Sentiment, Germany Flash Inflation Rate, ECB Lagarde (Wednesday) – Germany Retail Sales, Unemployment Change, Unemployment Rate. EMU Unemployment Rate, ECB Lagarde (Thursday) – EMU, Germany Final Manufacturing PMI, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is gaining 0.07% at 1.0588 and a breakout of 1.0615 (weekly high June 27) would target 1.0773 (monthly high June 9) en route to 1.0786 (monthly high May 30). On the other hand, the next support emerges at 1.0358 (monthly low June 15) followed by 1.0348 (2022 low May 13) and finally 1.0300 (psychological level).