EUR/USD wobbles around 1.0860 amidst alternating risk trends

EUR/USD appears to have met some decent resistance in the proximity of the 1.0900 hurdle so far on Tuesday.

EUR/USD: Rally shows signs of exhaustion

EUR/USD seems to struggle to extend the January’s rally further north of the 1.0900 mark amidst vacillating risk appetite trends and the consolidative theme surrounding the greenback.

Indeed, market participants appear prudent ahead of the upcoming FOMC event and the ECB gathering, both due next week and with bets favouring a 25 bps and 50 bps rate hike, respectively.

In the domestic calendar, Consumer Confidence in Germany tracked by GfK improved to -33.9 for the month of February. Additionally, the flash prints for the Manufacturing and Services PMIs in the euro area came at 48.8 and 50.7, respectively, while the same gauges for Germany came at 47 and 50.4, respectively.

In the US, the Manufacturing PMI is expected at 46.8 and the Services PMI at 46.6 in January.

What to look for around EUR

EUR/USD comes under pressure soon after failing to break above the key 1.0900 mark on Tuesday.

Price action around the European currency should continue to closely follow dollar dynamics, as well as the impact of the energy crisis on the euro bloc and the Fed-ECB divergence.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: Germany GfK Consumer Confidence, France Business Confidence, ECB Lagarde, EMU/France/Germany Advanced Manufacturing/Services PMIs (Tuesday) – Germany Ifo Business Climate (Wednesday) – Italy Business Confidence (Thursday) – France Consumer Confidence, ECB Lagarde (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 war in Ukraine and the protracted energy crisis on the bloc’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is losing 0.05% at 1.0862 and the breakdown of 1.0766 (weekly low January 17) would target 1.0560 (55-day SMA) en route to 1.0481 (monthly low January 6). On the other hand, the next up barrier emerges at 1.0926 (2023 high January 23) followed by 1.0936 (weekly high April 21 2022) and finally 1.1000 (round level).