EUR/USD looks firmer and now targets the 1.0880 zone

• EUR/USD picks up a more convincing pace and flirts with 1.0870.
• The risk appetite continues to support the upbeat mood in spot.
• Economic Sentiment in Germany surprised to the upside in January.

Bulls push harder and lift EUR/USD to fresh daily highs near 1.0870 on Tuesday, just pips away from Monday’s YTD peak.

EUR/USD: Further gains need to clear 1.0874

The greenback loses its grip further and allows EUR/USD to gather extra steam and approach Monday’s so far yearly tops near 1.0880.

Indeed, investors remain tilted towards the risk complex on Tuesday, propped up by positive results from the Chinese docket during early trade as well as firm prints from the Economic Sentiment in both Germany (16.9) and the broader euro area (16.7) for the month of January.

The uptick in spot, however, comes in contrast to the weak tone from yields on both sides of the Atlantic.

In the US data space, the NY Empire State Manufacturing Index worsened to -32.9 for the current month (from -11.2).

What to look for around EUR

EUR/USD appears so far well underpinned by the 1.0800 neighbourhood and looks at another test of the 1.0880 region amidst favourable risk appetite trends on Tuesday.

Price action around the European currency should continue to closely follow dollar dynamics, as well as the impact of the energy crisis on the euro bloc 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: ECOFIN Meeting, Germany Final Inflation Rate / ZEW Economic Sentiment, EMU ZEW Economic Sentiment, Italy Final Inflation Rate (Tuesday) -  EMU New Car Registrations / Final Inflation Rate (Wednesday) – ECB Lagarde, ECB Accounts (Thursday) - ECB Lagarde (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.40% at 1.0864 and faces the next up barrier at 1.0874 (monthly high January 16) followed by 1.0900 (round level) and finally 1.0936 (weekly high April 21 2022). On the flip side, the breakdown of 1.0481 (monthly low January 6) would target 1.0476 (55-day SMA) en route to 1.0443 (weekly low December 7).