EUR/USD Turns Positive And Regains 1.1800, Focus On Data

Following a brief knee-jerk to the 1.1790 in early trade, EUR/USD now manages to regain traction and advances beyond the 1.1800 mark on Wednesday.

Bank Note, Euro, Bills, Paper Money

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EUR/USD bid ahead of key US data

EUR/USD now adds to the ongoing recovery above 1.1800 on the back of the persistent lack of upside traction in the greenback. It is worth recalling that spot has so far met a decent barrier in the vicinity of 1.1850 (Tuesday), or multi-week highs.

In fact, month-end flows and the generalized improved mood in the risk complex has been sustaining the buying pressure in the pair, particularly exacerbated after Fed’s Powell disappointed USD-bulls’ expectations at the Jackson Hole event.

Extra support for EUR/USD came on Tuesday in the form of hawkish comments from ECB’s Knot and Holzmann, who advocated for a slower pace of bond purchases. Indeed, Knot said he expects the ECB to start reducing the pace of asset purchases under the PEPP at this month’s meeting, with the aim at finishing them in March. Holzmann added that the ECB should think on how to gradually dispose the current pandemic-oriented stimulus and focus instead on measures aimed at reaching the inflation target in a sustainable fashion.

In the euro docket, both German and EMU final Manufacturing PMIs came in a tad below the preliminary readings at 62.6 and 61.4, respectively, for the month of August. Additionally, German Retail Sales contracted 5.1% MoM in July and 0.3% from a year earlier, while the Unemployment Rate in the broader Euroland ticked lower to 7.6%, also in July.

Across the pond, all the attention will be on the ADP report on the job creation in the US private sector and the publication of the always-critical ISM Manufacturing.

What to look for around EUR

EUR/USD’s rally reached the proximity of 1.1850 on Tuesday, easing some ground soon afterwards, always amidst the broad-based selling pressure in the dollar. The cautious note from Powell at his latest speech sponsored a strong pullback in the dollar, which eventually underpinned the recovery in the pair. Looking at the broader picture, the ongoing recovery in the pair from YTD lows (August 20) tracks the improvement in the risk complex as well as the corrective downside in the buck. However, the re-affirmed dovish stance from the ECB (as per its latest meeting) is expected to keep spot under some pressure despite the healthy economic recovery in the region, which in turn stays propped up by the high morale among market participants.

Key events in the euro area this week: German Retail Sales, final Manufacturing PMIs (Wednesday) - final Services PMIs (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 in September could bring some political effervescence to the scenario. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency.

EUR/USD levels to watch

So far, spot is gaining 0.06% at 1.1814 and faces the next up barrier at 1.1845 (monthly high Aug.31) followed by 1.1908 (monthly high Jul.30) and finally 1.1953 (100-day SMA). On the downside, a break below 1.1663 (2021 low Aug.20) would target 1.1612 (monthly low Oct.20 2020) en route to 1.1602 (monthly low Nov.4 2020).

Disclosure: Information on this article contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes ...

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