EUR/USD climbs to 3-week highs around 1.1650 on dollar weakness

• EUR/USD adds to Monday’s gains north of the 1.16 mark.
• The greenback loses traction across the board on Tuesday.
• ECB-speak, US housing data, Fedspeak next in the docket.

The single currency extends the optimism seen at the beginning of the week and lifts EUR/USD to fresh tops past 1.1650 on turnaround Tuesday.

EUR/USD up on USD-selling

EUR/USD advances for the second session in a row and clinches new monthly peaks at the same time on the back of the continuation of the offered stance around the greenback, which forced the US Dollar Index (DXY) to record new monthly lows near 93.60.

The broad-based retracement in US yields put the dollar under extra pressure and encouraged risk takers to return to the markets, motivating spot to extend the weekly rebound and leave behind former October peaks around 1.1640.

Earlier in the session Bank of France’s F.Villeroy said he finds no reason for the ECB to raise rates before end of the next year, while he sees the French economy returning to pre-pandemic figures at some point by year end.

In the calendar, ECB’s Board members F.Elderson, F.Panetta and P.Lane will all speak later in the session. Across the pond, housing data will take centre stage in the docket along with speeches by FOMC’s Daly, Waller, Bowman and Bostic.

What to look for around EUR

EUR/USD finally managed to close a session above 1.1600 on Monday and now moves further north to new monthly peaks near 1.1660. While the improvement in the sentiment surrounding the risk complex lent extra wings to the par, price action is expected to keep looking to dollar dynamics for the time being, where tapering chatter remains well in centre stage. In the meantime, the idea that elevated inflation could last longer coupled with the loss of momentum in the economic recovery in the region, as per some weakness observed in key fundamentals, are seen pouring cold water over investors’ optimism as well as bullish attempts in the European currency.

Key events in the euro area this week: Final EMU CPI (Wednesday) – Preliminary PMIs in the euro zone (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Sustainability of the pick-up in inflation figures. 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 euro. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is gaining 0.36% at 1.1651 and faces the next up barrier at 1.1657 (monthly high Oct.19) followed by 1.1718 (55-day SMA) and finally 1.1755 (weekly high Sep.22). On the other hand, a break below 1.1571 (low Oct.18) would target 1.1524 (2021 low Oct.12) en route to 1.1495 (high Mar.9 2020).