EUR/USD struggles for direction near 1.1880

The single currency looks to extend the optimism seen in the second half of last week and now pushes EUR/USD to the area of recent tops around 1.188.

EUR/USD now targets 1.1900

EUR/USD now alternates gains with losses just below the 1.1900 neighbourhood, extending the bounce off last week’s lows in the 1.1780 region and always on the back of the improvement in the sentiment surrounding the risk complex.

In the meantime, yields of the German 10-year reference manage to rebound from last week’s lows in the -0.35% region to the -0.30% area so far, as the broad risk appetite trend look for a clear direction.

Further out, the euro continues to observe the developments from the quick spread of the Delta variant of the coronavirus and its potential impact on growth prospects in both the bloc and overseas, while many countries keep mulling the idea of reinstating lockdown measures and/or social restrictions.

In the domestic calendar and earlier in the session, German Wholesale Prices rose 1.5% MoM in June and gained 10.7% over the last twelve months.

Later on Monday, the Eurogroup and the US Treasury Secretary J.Yellen will participate in a discussion panel on the economic recovery and on banking and financial stability issues.

What to look for around EUR

EUR/USD has managed well to bounce off recent lows in the 1.1780 region, just above the key 2020-2021 support line. Price action around spot, in the meantime, is expected to exclusively follow dollar dynamics, particularly as investors continue to adjust to the latest FOMC gathering, when the Committee opened the door to tapering the QE programme sooner than anticipated. In addition, support for the European currency in the form of auspicious results from fundamentals in the bloc now appears somewhat mitigated considering recent data, although the investors’ morale remains high amidst the persistent optimism surrounding a strong rebound in the economic activity in the second half of the year.

Key events in the euro area this week: Euro Group meeting (Monday) – Germany Final June CPI (Tuesday) – EMU Industrial Production (Wednesday) – EMU Final June CPI (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the Delta variant of the coronavirus and pace of the vaccination campaign. Probable political effervescence around the EU Recovery Fund. German elections. Investors’ shift to European equities in the wake of the pandemic.

EUR/USD levels to watch

So far, spot is losing 0.05% at 1.1871 and a breakdown of 1.1781 (monthly low Jul.7) would target 1.1762 (78.6% Fibo of the November-January rally) and route to 1.1704 (2021 low Mar.31). On the other hand, the next up barrier emerges at 1.1895 (weekly high Jul.6) followed by 1.1975 (weekly high Jun.25) and finally 1.2001 (200-day SMA).