EUR/USD gives away initial gains and returns to 1.1000 ahead of ECB

• EUR/USD advances to fresh highs north of the 1.10000 mark.
• The pair keeps the bid tone after the FOMC rate hike on Wednesday.
• The ECB is largely anticipated to hike rates by 50 bps later in the session.

The European currency keeps the rally well in place and motivates EUR/USD to finally break above the 1.1000 mark for the first time since early April 2022.

EUR/USD remains bid ahead of the ECB

EUR/USD advances for the third consecutive session on Thursday on the back of the persistent decline in the greenback, which was particularly magnified in the wake of the FOMC event on February 1.

Indeed, the pair finally trespassed the psychological 1.1000 yardstick and climbed to fresh tops in the 1.1030/35 band earlier on Thursday. The uptick, however, faced some selling pressure and forced spot to recede to the 1.1000 region, where it attempted to consolidate.

Later in the session, all the attention will be on the ECB monetary policy meeting, where consensus among investors already priced in a 50 bps rate raise. Of note, in addition, will be the press conference by Chairwoman Lagarde, where investors are expected to closely follow any view of the potential next steps by the central bank in a context still dominated by high inflation, alleviated concerns regarding the energy crunch and now diminishing recession fears.

Earlier on Thursday, Germany’s trade surplus shrank a tad to €10B in December. In the US, Initial Claims are due in the first turn seconded by Factory Orders.

What to look for around EUR

The pronounced upside pushed EUR/USD north of the key 1.1000 hurdle on Thursday, as the weakness around the dollar remains the exclusive driver behind the unabated rally in the pair.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.

Key events in the euro area this week: Germany Balance of Trade, ECB Interest Rate Decision, ECB Lagarde (Thursday) - Germany, EMU Final Services PMI (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 Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.15% at 1.1000 and faces the next up barrier at 1.1032 (2023 high February 2) followed by 1.1100 (round level) and finally 1.1184 (weekly low March 31 2022). On the other hand, the breakdown of 1.0802 (weekly low January 31) would target 1.0766 (weekly low January 17) en route to 1.0639 (55-day SMA).