EUR/USD reaches 2-day highs around 1.1850 ahead of Powell, US data

• EUR/USD adds to Wednesday’s gains and retakes 1.1850.
• The dollar stays offered following Powell’s remarks.
• US Initial Claims, Powell’s second testimony next on tap.

The upside momentum in the European currency remains well and sound and now pushes EUR/USD back to the mid-1.1800s, or fresh 2-day highs, on Thursday.

EUR/USD focused on US docket

EUR/USD gains around a cent after rebounding from weekly lows in the 1.1770 region recorded in past hours.

The improvement in both spot and the risk complex in general comes on the back of the renewed offered bias in the buck, sparked after Wednesday’s dovish remarks from Chief Powell before his first semiannual testimony to the Congress.

Also weighing on the dollar, yields of the US 10-year reference resume the downside and target the 1.30% area, while yields of the German 10-year Bund flirt with recent lows around -0.34%.

In the meantime, risk appetite trends appear somewhat side-lined after GDP figures showed the Chinese economy expanded at an annualized 7.9% during the April-June period, a tad below consensus.

Nothing to write home about regarding the euro docket, while all the attention will be on the data releases in the US calendar: Initial Claims, the Philly Fed Index, the NY Empire State Index and Industrial/Manufacturing Production. In addition, Powell will once again testify to the Congress, this time before the Committee on Banking, Housing and Urban Affairs.

What to look for around EUR

EUR/USD’s recovery challenges the 1.1850 area following the drop to new lows near 1.1770 earlier in the week. 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 0.08% at 1.1843 and faces the next hurdle at 1.1895 (weekly high Jul.6) followed by 1.1975 (weekly high Jun.25) and finally 1.2002 (200-day SMA). On the flip side, 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).