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EUR/USD: Bulls regain control and target 1.0900

  • EUR/USD advances markedly and prints new tops near 1.0890.
  • The dollar sinks to new multi-month lows near 101.50.
  • US Retail Sales, Producer Prices disappointed expectations.

EUR/USD gathers extra steam and advances to fresh YTD highs near 1.0890 on Wednesday.

EUR/USD stronger on USD sharp selling

The bullish sentiment continues to grow around the risk complex on the back of the pronounced sell-off in the dollar, which reached new 8-month lows near 101.50 when tracked by the USD Index (DXY).

Against that backdrop, EUR/USD reversed the recent 3-day weakness and climbed to the boundaries of the 1.0890 level, recording at the same time new highs in an area last visited in late April 2022.

Collaborating with the better tone in the single currency emerges comments from ECB’s Board member O.Rehn, who suggested that significant rate raises appear justified in the short term to keep inflation expectations contained.

In the domestic calendar, results for the month of December in the euro bloc saw New Car Registrations expand 12.8% YoY, while the final CPI rose 9.2% YoY and 5.2% YoY when it comes to the Core CPI.

In the US, Retail Sales contracted 1.1% MoM in December and Producer Prices dropped at a monthly 0.5% in the same period. In addition, MBA Mortgage Applications rose 27.9% in the week to January 13 and Industrial Production contracted 0.7% in December vs. the previous month.

Later in the session comes the NAHB Index, Business Inventories, TIC Flows and the Fed’s Beige Book.

Furthermore, FOMC’s Bostic, Bullard, Harker and Logan are also due to speak.

What to look for around EUR

EUR/USD gathered renewed steam and now trades closer to the key round level at 1.0900, always in response to the persevering selling bias surrounding the dollar.

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: EMU New Car Registrations / Final Inflation Rate (Wednesday) – ECB Lagarde, ECB Accounts (Thursday) - ECB Lagarde (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst diminishing probability of a recession in the region. 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 gaining 0.68% at 1.0860 and faces the next up barrier at 1.0887 (monthly high January 18) followed by 1.0900 (round level) and finally 1.0936 (weekly high April 21 2022). On the flip side, the breakdown of 1.0776 (weekly low January 17) would target 1.0481 (monthly low January 6) en route to 1.0443 (weekly low December 7).

Author

Pablo Piovano

Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.

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