EUR/USD records new 2022 lows near 1.1080, focus on geopolitics, data

Sellers remain well in control of sentiment around the single currency, dragging EUR/USD to fresh 2022 lows in the 1.1080/75 band midweek.

EUR/USD weaker on risk-off mood, focuses on data

EUR/USD, in line with the rest of the risk complex, grinds lower for yet another session and revisits the sub-1.1100 area to record new YTD lows near 1.1080 against the backdrop of relentless upside in the US dollar and generally solid demand for safe havens – all in response to the unabated progress of the Russian invasion of Ukraine.

The persistent buying pressure in the bond markets has also kept German 10y Bund yields on the defensive and in negative territory for the first time since late January.

The euro has shown no reaction to cash markets in Euroland now pricing in 20 bps of rate hikes by the ECB towards year end (from 15 bps recorded during early trade).

On the domestic calendar, the German Unemployment Change shrank by 33K persons and the Unemployment Rate ticked lower to 5.0% during last month. Later in the session, EMU Flash CPI for the month of February is also due ahead of speeches by ECB’s Schnabel and De Guindos. Across the pond, Chair Powell’s testimony will be in the limelight along with the release of the ADP report and the Fed’s Beige Book.

What to look for around EUR

EUR/USD continues to look to the geopolitical scenario and risk appetite trends for near-term direction. On this, the recent deterioration of the Russia-Ukrainian situation is expected to keep the pair under pressure amidst solid risk-off sentiment and demand for the greenback. In the meantime, bouts of strength in the pair should remain underpinned by speculation of a potential interest rate hike by the ECB probably sooner than many anticipate, higher German yields, persevering elevated inflation, and a decent pace of economic activity and auspicious results from key fundamentals in the region. The threat to this view, as usual, comes from the Fed and a potential tighter-than-expected start of the normalization of its monetary conditions.

Key events in the euro area this week: Germany Unemployment Change, Unemployment Rate, EMU Flash CPI (Wednesday) – Germany/EMU Services PMI, EMU Unemployment Rate, ECB Accounts (Thursday) – Germany Trade Balance, EMU Retail Sales (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Geopolitical concerns from the Russia-Ukraine conflict.

EUR/USD levels to watch

So far, spot is losing 0.29% at 1.1087 and faces the next up barrier at 1.1317 (55-day SMA) followed by 1.1390 (weekly high Feb.21) and finally 1.1395 (weekly high Feb.16). On the other hand, a drop below 1.1079 (2022 low Mar.2) would target 1.1000 (round level) en route to 1.0870 (low May 25 2020).