EUR/USD remains bid near 1.0750 amidst rising cautiousness pre-US CPI

• EUR/USD extends the advance for another session on Wednesday.
• ECB’s Villeroy, Holzmann advocated for higher rates in the next months.
• Investors’ attention remains largely on Thursday’s US CPI release.

The optimism around the European currency remains well and sound and prompts EUR/USD to keep the trade in the upper end of the recent range near 1.0750 midweek.

EUR/USD cautious ahead of US key data

EUR/USD is up for the fourth consecutive session on Wednesday, although further upside now appears somewhat contained around the 1.0750/60 band amidst persistent prudence among traders in light of Thursday’s release of US inflation figures measured by the CPI for the month of December.

The bid bias in spot comes in contrast to the corrective session in the German 10-year Bund yields after two daily gains in a row. Same performance can be seen in the US money markets, where yields retreat across the curve.

Some support for the shared currency emerged from earlier comments from ECB’s Board members Villeroy and Holzmann, who advocated for the continuation of the bank’s tightening cycle, while inflation risks in the region remain tilted to the upside.

In the domestic docket, Italian Retail Sales expanded 0.8% in November vs. the previous month and 4.4% from a year earlier.

In the NA, the only release of note will be the MBA Mortgage Applications in the week to January 6.

What to look for around EUR

EUR/USD has embarked on a strong recovery and has already retaken the key barrier at 1.0700 the figure and beyond.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region 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: Italy Retail Sales (Wednesday) - France final Inflation Rate, Germany Full Year GDP Growth, MEU Balance of Trade/Industrial Production (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the protracted energy crisis on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.12% at 1.0745 and faces the next resistance level at 1.0760 (monthly high January 9) followed by 1.0773 (monthly high June 27) and finally 1.0786 (monthly high May 30 2022). On the downside, the breach of 1.0481 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0410 (55-day SMA).