EUR/USD recedes from tops, back to the 1.1600 area ahead of Lagarde

Sellers returned to the market and forced EUR/USD to abandon the area of recent peaks and refocus once again on the 1.1600 neighbourhood.

EUR/USD stays capped by 1.1640 so far, looks to ECB

After two daily pullbacks in a row, EUR/USD now trades on the defensive and hovers around the 1.1600 area, fading away at the same time Monday’s uptick to tops in the 1.1640 region.

The softer stance in the European currency follows the firm note in the buck, which manages to regain traction affter three consecutive daily pullbacks, including the rejection from new 2021 highs around 94.50.

In the docket, the final German Manufacturing PMI came at 56.2 (from 60.8) and the EMU’s gauge receded to 56.4. Still in the euro area, Producer Prices rose 1.1% MoM in August and 13.4% over the last twelve months. Later in the session, Chairwoman C.Lagarde will speak in Frankfurt.

Across the pond, the ISM Non-Manufacturing will take centre stage seconded by the IBD/TIPP Index, trade balance results and the final Markit’s Services PMI.

What to look for around EUR

EUR/USD started the month on an optimistic fashion and clinched fresh tops around 1.1640 on Monday, always on the back of the renewed selling bias in the dollar. The move lacked follow through, however, sparking a corrective downside in consequence. As usual, dollar dynamics, occasional bouts of risk aversion and higher US yields continue to keep the pair under scrutiny for the time being, while the pick-up in inflation in the region commenced to raise some eyebrows among some ECB members. In the euro region, the likely loss of momentum in the economic recovery, as per some weakness seen in key fundamentals, also caps the upside potential in the pair.

Key events in the euro area this week: ECB Lagarde, final Services PMIs (Tuesday) – EMU Retail Sales (Wednesday) – ECB Accounts (Thursday) – German Balance of Trade (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. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is losing 0.15% at 1.1598 and faces the next up barrier at 1.1640 (weekly high Oct.4) followed by 1.1715 (20-day SMA) and finally 1.1755 (weekly high Sep.22). On the other hand, a break below 1.1562 (2021 low Sep.30) would target 1.1500 (round level) en route to 1.1495 (high Mar.9 2020).