EUR/USD: Rising bets for a challenge of the 2022 low at 1.0470

The single currency remains within the familiar range vs. the greenback and motivates EUR/USD to gyrate around the 1.0500 neighbourhood.

EUR/USD looks to Fed for direction

EUR/USD looks to add to Tuesday’s gains above the 1.0500 mark, although the price action is expected to remain side-lined at least until the key FOMC gathering due later in the European evening/night.

Spot remains well under pressure, and despite a 50 bps rate hike by the Fed on Wednesday is widely priced in, the centre of the debate is expected to shift to Powell’s pressure where the main focus will surely be on the balance sheet runoff and the potential extra rate hikes in the next months.

In the German cash market, the 10y bund yields seem to struggle to advance further north of the key 1.0% yardstick amidst rising unease among investors pre-FOMC event.

In the domestic calendar, Germany’s trade surplus narrowed to €9.7B in March, with Exports shrinking 3.3% and Imports expanding 3.4% on a monthly basis. Later in the session, the final Services PMIs are due in Germany and the broader Euroland along with Retail Sales also in the euro area.

Across the pond, usual weekly MBA Mortgage Applications, the ADP Report, Balance of Trade, Services PMI and the ISM Non-Manufacturing are all due later in the NA session.

What to look for around EUR

EUR/USD remains depressed and flirts with the 1.0500 zone amidst lack of upside traction and absence of bulls’ conviction. The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Balance Trade, Final Services PMI, EMU Final Services PMI, Retail Sales (Wednesday) – Germany Factory Orders, Construction PMI (Thursday) – Germany Industrial Production (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. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is up 0.02% at 1.0519 and faces the next hurdle at 1.0593 (high April 29) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the other hand, a breach of 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).