EUR/USD: Bears regain control and revisit 1.0730

• EUR/USD comes under pressure following recent tops.
• Germany labour market report, EMU Flash CPI next of note.
• US Consumer Confidence next on tap in the US docket.

Sellers seem to have regained the upper hand and now drag EUR/USD back to the 1.0730 region on turnaround Tuesday.

EUR/USD meets resistance just below 1.0800

Following three consecutive daily advances, EUR/USD now retreats to the 1.0730 after climbing to new monthly highs near 1.0790 at the beginning of the week.

The so far corrective move in the pair comes in tandem with the resumption of some buying interest in the greenback, as US markets slowly return to the normal activity following Monday’s Memorial Day holiday.

The ongoing decline in the pair also falls in line with the knee-jerk in the German 10y Bund yields, which retreat to the 1.04% region on Tuesday.

In the domestic calendar, the German labour market report is due seconded by the preliminary inflation figures in the broader Euroland for the month of May. Across the pond, results from the housing sector are due ahead of the Consumer Confidence print tracked by the Conference Board.

What to look for around EUR

EUR/USD’s bounce off 2022 lows near 1.0350 (May 13) has been so far underpinned by unusual hawkish ECB-speak leaning towards an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency.

In addition, the renewed selling bias in the greenback has also collaborated with the multi-cent upside in the pair, as investors appear to have already pencilled in a couple of 50 bps rate hikes at the June and July gatherings.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, elevated inflation and a decent pace of the economic recovery in the euro bloc are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Unemployment Change, Unemployment Rate, EMU Flash Inflation Rate (Tuesday) – Germany Retail Sales, Final Manufacturing PMI, EMU Final Manufacturing PMI, ECB Lagarde (Wednesday) – Germany Balance of Trade, Final Services PMI, EMU Retail Sales, Final Services PMI (Friday).

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro area. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is retreating 0.30% at 1.0741 and a breach of 1.0641 (low May 25) would target 1.0532 (low May 20) en route to 1.0348 (2022 low May 13). On the other hand, the next up barrier emerges at 1.0786 (monthly high May 30) followed by 1.0936 (weekly high April 21) and finally 1.0981 (100-day SMA).