EUR/USD regains the smile and targets 1.0400

The European currency regains some balance, lifting EUR/USD back to the boundaries of the 1.0400 barrier on Tuesday.

EUR/USD looks to data, US Dollar

EUR/USD manages to advance after two daily pullbacks in a row in response to the renewed offered bias in the Greenback. Indeed, the US Dollar gives away part of the ground gained at the beginning of the week, as the risk complex gathers some steam on turnaround Tuesday.

The shared currency now looks firm after Monday’s volatile session saw the pair climb to as high as the boundaries of the 1.0500 mark just to suddenly reverse course and drop to the 1.0330 region, where some decent support appears to have turned up so far.

The uptick in the pair so far comes in tandem with some weakness in the German 10-year bund yields, which extend the drop below the 1.90% yardstick.

In the domestic calendar, final figures saw the Consumer Confidence gauged by the European Commission at -29.3 for the month of November and the Economic Sentiment improve a tad to 93.7 for the same month.

Later, German preliminary Consumer Price Index (CPI) and Harmonized Index of Consumer Prices (HICP) will take centre stage seconded by the US Consumer Confidence and the House Price Index.

What to look for around EUR

EUR/USD starts the week in a volatile fashion and now looks to reclaim the 1.0400 mark and beyond amidst some fresh selling pressure around the Dollar and prevailing appetite for the risky assets.

In the meantime, the European currency is expected to closely follow Dollar dynamics, the impact of the energy crisis on the region and the Fed-European Central Bank (ECB) policy divergence. In addition, markets repricing of a potential pivot in the US Federal Reserve's policy remains the exclusive driver of the pair’s price action for the time being.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the Euro in the short-term horizon.

Key events in the euro area this week: EMU Final Consumer Confidence, Economic Sentiment, Germany Flash CPI and HICP (Tuesday) - Germany Unemployment Rate, Unemployment Change, EMU Flash Inflation Rate (Wednesday) - Germany Retail Sales, ECB General Council Meeting, Germany/EMU Final Manufacturing PMI, EMU Unemployment Rate (Thursday) - ECB Lagarde, Germany Balance of Trade (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.43% at 1.0385 and faces the next up barrier at 1.0496 (monthly high November 28) ahead of 1.0500 (round level) and finally 1.0614 (weekly high June 27). On the flip side, a breach of 1.0330 (weekly low November 28) would target 1.0222 (weekly low November 21) en route to 1.0035 (100-day Simple Moving Average (SMA)).