EUR/USD remains bid and close to 1.0900

The optimism around the single currency remains well and sound in the European afternoon, with EUR/USD posting decent gains near the 1.0900 hurdle.

EUR/USD: Daily gains capped near 1.0915

EUR/USD remains firm near the 1.0900 neighbourhood on the back of the small retracement in the dollar and inconclusive risk appetite trends at the beginning of the week.

So far, persistent cautiousness dominates the mood among investors ahead of key monetary policy meetings by the Fed and the ECB on Wednesday and Thursday, respectively.

Earlier in the session, the German economy is seen contracting 0.2% QoQ in Q4 and expanding 1.1% over the last twelve months, as per preliminary GDP readings. In addition, the final Consumer Confidence in the euro area improved to -20.9in January, while the Economic Sentiment also ticked higher to 99.9 in the same period.

Later in the NA session, the Dallas Fed Manufacturing Index will be the sole release on Monday.

What to look for around EUR

The sharp yearly rally in EUR/USD appears to have met an initial and decent barrier around the 1.0930 for the time being.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next steps from the ECB and the Federal Reserve at their upcoming gatherings in the next week.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.

Key events in the euro area this week: Germany Flash Q4 GDP Growth Rate, EMU Final Consumer Confidence, Economic Sentiment (Monday) – Germany Retail Sales/Unemployment Rate/Flash Inflation Rate, EMU Flash Q4 GDP Growth Rate (Tuesday) – Germany, EMU Final Manufacturing PMI, EMU Flash Inflation Rate/Unemployment Rate (Wednesday) – Germany Balance of Trade, ECB Interest Rate Decision, ECB Lagarde (Thursday) - Germany, EMU Final Services PMI (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.29% at 1.0896 and faces the next resistance at 1.0929 (2023 high January 26) followed by 1.0936 (weekly high April 21 2022) and finally 1.1000 (round level). On the other hand, the breakdown of 1.0766 (weekly low January 17) would target 1.0608 (55-day SMA) en route to 1.0481 (monthly low January 6).