EUR/USD resumes the upside and approaches 1.1350, looks to Lagarde

The single currency regains upside traction and motivates EUR/USD to return to the 1.1350 region on Tuesday.

EUR/USD focuses on Lagarde, Powell

EUR/USD leaves behind the pessimism seen at the beginning of the week and regains buying interest. The pair is bouncing off Monday’s lows in the 1.1285/80 band to the mid-1.1300s, where some initial resistance turned up so far.

The resumption of the upside bias in the pair comes in response to another knee-jerk reaction from the buck, this time dragging the US Dollar Index (DXY) back to the 95.80 region amidst the lack of further advance in US yields, where the 10y benchmark note seems to have met a tough barrier around 1.80%. On this side of the Atlantic, the rally in yields of the German 10y Bund in place since mid-December has so far faltered just ahead of the 0.00% at the beginning of the week.

Minor releases in the euro area saw the Industrial Production in Spain expanding 4.8% in the year to November and Retail Sales in Italy contracting at a monthly 0.4% also in November.

Later in the European morning, Chairwoman C.Lagarde is due to speak. Across the pond, Chief J.Powell will testify before the US Senate while the NFIB index and the IBD/TIPP index are also due.

What to look for around EUR

EUR/USD remains in a consolidation mode since late November, with gains capped by the proximity of the 1.1400 mark and the lower end offering contention around 1.1220. In the meantime, the pair’s price action continues to track the performance of the greenback as well as the policy divergence between the ECB vs. the Federal Reserve and the response to the persistent elevated inflation on both sides of the Atlantic. On another front, the unabated progress of the coronavirus pandemic remains as the exclusive factor to look at when it comes to the economic growth prospects and investors’ morale.

Key events in the euro area this week: ECB C.Lagarde (Tuesday) - EMU Industrial Production (Wednesday) - Germany Full Year GDP Growth 2021, ECB C.Lagarde (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. ECB stance/potential reaction to the persistent elevated inflation in the region. ECB tapering speculation/rate path. Presidential elections in France.

EUR/USD levels to watch

So far, spot is gaining 0.22% at 1.1350 and faces the next up barrier at 1.1364 (55-day SMA) seconded by 1.1386 (monthly high November 30) and finally 1.1464 (weekly high Nov.15). On the other hand, a break below 1.1272 (weekly low Jan.4) would target 1.1221 (weekly low Dec.15) en route to 1.1186 (2021 low Nov.24).