EUR/USD loses the grip and retests 1.1550

• EUR/USD fades Friday’s advance and drops to 1.150.
• The rebound in the greenback weighs on the pair on Monday.
• Industrial Production in Italy surprised to the upside in August.

The single currency comes under some selling pressure and drags EUR/USD back to the mid-1.1500s at the beginning of the week.

EUR/USD depressed on dollar strength

EUR/USD leaves behind Friday’s advance and returns instead to the lower end of the recent range in the 1.1550 region on Monday.

The resumption of the bid bias in the dollar coupled with higher US yields across the curve encourages the US Dollar Index to refocus its price action on the upside and with the immediate target at the 2021 peaks around 94.50.

Higher yields in the German 10-year Bunds – which trade in levels last seen in May around -0.12% - fail to ignite some fresh spark of buying interest in the European currency, leaving spot to the mercy of sellers for the time being.

Nothing of note in the euro docket, where Italian Industrial Production contracted 0.2% MoM in August and came flat on a yearly basis, both prints coming above initial estimates.

What to look for around EUR

Despite the recent bullish attempt, EUR/USD remains well under pressure. Indeed, dollar dynamics continue to rule the sentiment surrounding the European currency and relegate the pair to trade near YTD lows for the time being. The firmer tone in the buck along with higher US yields and bouts of risk aversion – particularly on the debt ceiling issue - continue to undermine the performance of the risk universe, while the growth outlook appears under pressure on rising speculations that the inflation could take longer to reverse the ongoing elevated levels. In addition, the likely loss of momentum in the economic recovery, as per some weakness seen in key fundamentals, also caps the upside potential in the pair.

Key events in the euro area this week: German/EMU Economic Sentiment (Tuesday) – German final CPI, EMU Industrial Production (Wednesday) – European Council Meeting (Thursday) - European Council Meeting, EMU Balance of Trade (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. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is losing 0.09% at 1.1560 and faces the next up barrier at 1.1640 (weekly high Oct.4) followed by 1.1664 (20-day SMA) and finally 1.1755 (weekly high Sep.22). On the other hand, a break below 1.1529 (2021 low Oct.6) would target 1.1500 (round level) en route to 1.1495 (high Mar.9 2020).