EUR/USD attempts a rebound to the 1.1780 region, focus on Powell

The single currency struggles for direction and prompts EUR/USD to hover around the area of recent lows near 1.1780.

EUR/USD under pressure ahead of Powell

Following Tuesday’s sharp selloff to the sub-1.1800 levels, EUR/USD now looks to attract dip-buyers and retake, initially, the 1.1800 hurdle amidst some cautious mood ahead of Powell’s semiannual testimony to the Congress.

Spot lost nearly a cent on Tuesday after US inflation figures surprised to the upside in June, noting that headline consumer prices rose 5.4% YoY (highest since 2008) and the core CPI gained 4.5% YoY (highest since 1991).

In addition, pressure for an earlier-than-expected tapering of the US QE programme continue to build up (as per recent Fedspeak and data), in stark contrast to the ECB stance. On the latter, ECB’s De Guindos said earlier in the week that the Council will discuss the bank’s forward guidance next week. It is worth recalling that the ECB event is due on July 22.

In the euro data space, Industrial Production in the broader Euroland contracted 1.0% MoM in May and expanded at an annualized 20.5%, both prints coming in short of estimates. In addition, final Spanish CPI rose 0.5% MoM in June and 2.7% over the last twelve months.

What to look for around EUR

EUR/USD returns to the area of recent lows near 1.1780, just above the key 2020-2021 support line. Price action around spot, in the meantime, is expected to exclusively hinge on dollar dynamics, particularly as investors continue to adjust to the Fed’s hawkish message, prospects of higher inflation in the US and potential QE tapering earlier than anticipated. On the euro side of the equation, 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: 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 gaining 0.06% at 1.1782 and a breakdown of 1.1771 (monthly low Jul.14) 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).