EUR/USD stays cautious around 1.1600 ahead of data, ECB

• EUR/USD extends the consolidative mood around 1.1600.
• The German labour market report comes next in the docket.
• The ECB meets later on Thursday with focus on PEPP, inflation.

The single currency remains unable to gather serious traction in either direction and relegates EUR/USD to trade within a narrow range around the 1.1600 neighbourhood.

EUR/USD now looks to the docket, ECB

EUR/USD extends the erratic performance around the 1.1600 zone on Thursday against the backdrop of rising cautiousness among market participants ahead of the key ECB monetary policy meeting due later in the session.

The also steady activity in the greenback accompanies the side-lined mood around spot despite the risk-on sentiment appears to prevail in the wake of the opening bell in Euroland.

The dollar suffered the intense pullback in US yields in past sessions, particularly in the longer dated bonds, while the front end of the curve continues to edge higher and trades in levels last seen in March 2020. 

In the docket, the German labour market report will be in the limelight later in the session followed by the preliminary inflation figures for the month of October. Still in the euro area, the ECB is expected to re-affirm the dovish stance at its meeting later in the session, where the Governing Council's views on the current elevated inflation will be in the centre of the debate along with the continuation/end of the ongoing stimulus programme.

Across the pond, all the attention will be on the release of another revision of the Q3 GDP along with the usual Initial Claims and Pending Home Sales.

What to look for around EUR

EUR/USD remains unable to push further north of the 1.1600 hurdle for the time being. While the improvement in the sentiment surrounding the risk complex lent extra wings to the par in past sessions, price action is expected to keep looking to dollar dynamics for the time being, where tapering chatter and a probable sooner-than-expected lift-off in rates remain 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, is seen pouring cold water over investors’ optimism as well as bullish attempts in the European currency.

Key events in the euro area this week: German labour market report, EMU final Consumer Confidence, ECB meeting, German flash CPI (Thursday) – Advanced German Q3 GDP, flash EMU CPI (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 in light of the rising conflict between the EU, Poland and Hungary. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is up 0.04% at 1.1610 and faces the next up barrier at 1.1669 (monthly high Oct.19) followed by 1.1699 (55-day SMA) and finally 1.1755 (weekly high Sep.22). On the other hand, a break below 1.1584 (weekly low Oct.26) would target 1.1571 (low Oct.18) en route to 1.1524 (2021 low Oct.12).