EUR/USD: Bears remain in control near 1.0500

• EUR/USD keeps the offered stance well and sound on Monday.
• German 10y bund yields surpassed the 1.15% region, fresh tops.
• EMU Investor Confidence sank to -22.6 in May.

The single currency sees its selling pressure accelerated and drags EUR/USD back to the 1.0500 neighbourhood on Monday.

EUR/USD weaker on USD-buying

EUR/USD resumes the downside following Friday’s inconclusive price action and in response to the firmer note in the greenback, which pushed the US Dollar Index (DXY) to print fresh 19-year highs around 104.20 earlier in the session.

Extra weakness in the pair comes amidst a knee-jerk in the German 10y bund yields after hitting fresh tops past 1.16% for the first time since August 2014, while US yields so far perform in a mixed tone.

In the domestic calendar the EMU Investor Confidence tracked by the Sentix Index deteriorated to -22.6 for the month of May. Across the pond, the only release of note will be the Wholesale Inventories, short-term Bill Auctions and the speech by FOMC’s Bostic.

What to look for around EUR

EUR/USD remains under pressure in the 1.0500 region so far. The outlook for the pair still points to the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Sentix Index (Monday) – Germany, EMU Economic Sentiment (Tuesday) – Final Germany Inflation Rate, ECB Lagarde (Wednesday) – EMU Industrial Production (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is retreating 0.36% at 1.0507 and a breach of 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017). On the upside, the next hurdle comes at 1.0641 (weekly high May 5) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level).