EUR/USD regains some traction and advances to 1.1550

The single currency manages to leave behind the pessimism seen at the beginning of the week and now lifts EUR/USD back to the mid-1.1500s midweek.

EUR/USD now focuses on US docket

EUR/USD regains some composure and bounces off Tuesday’s new 2021 lows in the 1.1525/20 band.

The soft tone surrounding the greenback allows a mild improvement in the pair on Wednesday, all ahead of key data releases in the US calendar and amidst declining yields in the US cash market.

Indeed, the key US 10-year yields retreat to the 1.57% region so far, shedding around 6 bps since tops recorded in past sessions. In Germany, yields of the German 10-year Bund also shed some ground and return to the -0.12% area.

In the domestic docket, Industrial Production in the broader Euroland contracted at a monthly 1.6% in August and expanded 5.1% from a year earlier.

Across the pond, inflation figures measured by the CPI will be in the centre of the debate seconded by the release of the FOMC Minutes.

What to look for around EUR

EUR/USD remains well under pressure despite the ongoing rebound from recent lows near 1.1520 (October 12). Indeed, dollar dynamics continue to rule the sentiment surrounding the European currency and relegate the pair to trade in the vicinity of 2021 lows for the time being. The firmer tone in the buck along with higher US yields and bouts of risk aversion – particularly in response to inflation jitters and the energy crunch - continue to undermine the performance of the risk universe, while the growth outlook appears under pressure on rising speculations that the inflation could take longer to reverse the ongoing elevated levels. In addition, 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: German final CPI, EMU Industrial Production (Wednesday) – European Council Meeting (Thursday) - European Council Meeting, EMU 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 gaining 0.22% at 1.1555 and faces the next up barrier at 1.1586 (weekly high Oct.11) followed by 1.1637 (20-day SMA) and finally 1.1640 (weekly high Oct.4). On the other hand, a break below 1.1524 (2021 low Oct.12) could target 1.1500 (round level) en route to 1.1495 (high Mar.9 2020).