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• EUR/USD corrects lower and briefly tests the 1.0680 region.
• Industrial Production in Italy surprised to the downside.
• US CPI takes the center stage later in the NA session.

The European currency gives away part of the recent gains and prompts EUR/USD to recede to the 1.0680/75 band on Tuesday, where it seems to have met some initial contention.
 

EUR/USD cautious ahead of US CPI, risk-off

Following multi-week highs near 1.0750 at the beginning of the week, EUR/USD now appears to see that initial upside impulse somewhat mitigated on the back of the moderate rebound in the greenback.

In fact, the dollar regains some traction after collapsing to multi-week lows in the previous session in response to rising speculation that the Fed might pause its hiking cycle as soon as at the March gathering, always following heightened concerns around the US banking sector.

In the domestic docket, Industrial Production in Italy contracted at a monthly 0.7% in January and expanded 1.4% over the last twelve months.

Across the pond, the salient event will be the release of the US inflation figures gauged by the CPIP for the month of February.
 

What to look for around EUR

EUR/USD now faces some downside pressure and puts the 1.0700 region to the test amidst some recovery in the dollar ahead of US CPI.

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 past the March meeting, when the bank has already anticipated another 50 bps rate hike.

Key events in the euro area this week: ECOFIN Meeting (Tuesday) – EMU Industrial Production (Wednesday) – ECB Interest Rate decision, ECB Lagarde (Thursday) – EMU Final Inflation Rate (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 retreating 0.31% at 1.0697 and faces the next contention at 1.0524 (monthly low March 8) seconded by 1.0481 (2023 low January 6) and finally 1.0324 (200-day SMA). On the upside, the breakout of 1.0737 (monthly high March 13) would target 1.0804 (weekly high February 14) en route to 1.1032 (2023 high February 2).

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