• EUR/USD bounces off lows near 1.0480 on Friday.
  • ECB’s Villeroy suggested rates could be positive by year end.
  • All the attention will be on US Nonfarm Payrolls later in the NA session.

After bottoming out in the 1.0480 region earlier in the session, EUR/USD manages to regain some buying interest and now reclaims the area further north of the 1.0500 barrier.

EUR/USD up on rates chatter, dollar weakness

EUR/USD regains some composure following Thursday’s sharp sell-off and after dropping to fresh multi-session lows in the 1.0485/80 band during early trade.

The greenback is undergoing some selling pressure which is sponsoring the bounce in the pair north of the 1.0500 figure as the sentiment in the risk-associated universe appears somewhat improved in the European morning.

Lending some support to the EUR side is commentary from ECB’s Villeroy, who suggested that the bank’s policy rates could return to positive territory by the end of the year. Further support comes from German 10y bund yields, which are climbing to fresh peaks near 1.10% for the first time since later July 2014.

On the euro docket, Industrial Production in Germany contracted at a monthly 3.9% in March. In the US calendar, April’s Payrolls are due seconded by the Unemployment Rate, Consumer Credit Change and speeches by FOMC’s Williams and Bostic.

What to look for around EUR

EUR/USD came under renewed downside pressure in the wake of the FOMC event. The downtick seems to have met contention around 1.0480 ahead of the key NFP release due later on Friday. The outlook still remains tilted towards the bearish, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence.

Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood music around the euro.

Key events in the euro area this week: Germany Industrial Production (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. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is gaining 0.18% at 1.0558 and faces the next up barrier at 1.0641 (weekly high May 5) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the flip side, a breach of 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).


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