EUR/USD picks up pace and retargets 1.0900

• EUR/USD rebounds from earlier lows near 1.0860 on Tuesday.
• The German 10-year Bund yields drop to 3-day lows.
• Germany’s Business Climate improved in January.

The European currency now looks to extend the bounce off earlier lows in the 1.0860/55 band vs. the greenback and lifts EUR/USD back to the boundaries of 1.0900 the figure on Wednesday.

EUR/USD refocuses on the 1.0900 barrier

EUR/USD so far advances for the sixth session in a row in a context dominated by alternating risk appetite trends, as investors – and global assets in general – remain prudent ahead of the upcoming FOMC and ECB events next week.

Further support for the euro came once again from hawkish comments from ECB rate setters, this time Board members Makhlouf and Vasle, who advocated for half point rate raises and favoured staying in the restrictive territory for a while.

Also collaborating with the optimism around the euro and reinforcing the view that Germany – and the Euroland – could avoid a recession, the German Business Climate improved to 90.2 during January.

Across the pond, the MBA Mortgage Applications expanded 7.0% in the week to January 20.

What to look for around EUR

EUR/USD flirts once again with the 1.0900 neighbourhood following recent 9-month peaks (January 23).

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next steps from the ECB and the Federal Reserve.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency.

Key events in the euro area this week: Germany Ifo Business Climate (Wednesday) – Italy Business Confidence (Thursday) – France Consumer Confidence, ECB Lagarde (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 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 0.12% at 1.0895 and faces the next up barrier at 1.0926 (2023 high January 23) followed by 1.0936 (weekly high April 21 2022) and finally 1.1000 (round level). On the flip side, the breakdown of 1.0766 (weekly low January 17) would target 1.0576 (55-day SMA) en route to 1.0481 (monthly low January 6).