EUR/USD remains offered and challenges 1.1400

The single currency extends the weekly leg lower and now drags EUR/USD to the 1.1400 neighbourhood on turnaround Tuesday.

EUR/USD remains capped by 1.1480

EUR/USD extends the pessimism witnessed at the beginning of the trading week and now put the 1.1400 level to the test amidst the moderate recovery in the sentiment surrounding the US dollar.

Indeed, US yields keep marching higher and navigate in the upper end of the recent range, as market participants continue to favour a more aggressive Fed’s tightening vs. the ECB, all following the latest US Payrolls results and the hawkish tilt at the ECB event.

In the German cash markets, yields of the 10y benchmark Bund now shed some ground after hitting fresh tops around 0.25% for the first time since January 2019. The drop in spot is reflected by the pick-up in the US-German yield spread to past the 170 pts following recent 3-month lows around 167 pts (February 4).

Nothing worth mentioning data wise in the euro area on Tuesday, while trade balance figures and the IBD/TIPP Index and the NFIB Index are all due across the pond.

What to look for around EUR

EUR/USD now faces some downside pressure following recent peaks close to 1.1500 the figure. The optimism around spot seems threatened by the recovery in the greenback, which has particularly regained traction after US Nonfarm Payrolls surprised to the upside in January. The now improved outlook in the pair looks bolstered by prospects of a potential interest rate hike by the ECB at some point by year end, higher German yields, elevated inflation in the region and a decent pace of the rebound in the economic activity and other key fundamentals.

Key events in the euro area this week: Germany Balance of Trade (Wednesday) - Germany Final January CPI (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 retreating 0.32% at 1.1405 and faces the next up barrier at 1.1483 (2022 high Feb.4) followed by 1.1496 (200-week SMA) and finally 1.1670 (200-day SMA). On the other hand, a break below 1.1315 (55-day SMA) would target 1.1121 (2022 low Jan.28) en route to 1.1100 (round level).