EUR/USD: Recovery gathers steam and targets 1.0200

• EUR/USD adds to Friday’s advance and surpasses the 1.0150 level.
• The dollar remains offered amidst increasing risk-on sentiment.
• NAHB Index and TIC Flows will be the only releases across the pond.

The optimism around the European currency remains on the rise and now lifts EUR/USD to multi-session highs around 1.0160 on Monday.

EUR/USD boosted by risk appetite trends, USD weakness

EUR/USD advances for the second straight session at the beginning of the week, gaining already more than two big figures since last week’s cycle lows in the 0.9950 region.

Renewed and quite strong selling pressure in the US dollar allows the pair to extend the bounce from recent lows, helped at the same time by the change of heart surrounding the risk-linked galaxy ahead of the key ECB event later in the week. It is worth recalling that the central bank is expected to start its normalization of the monetary conditions with a 25 bps rate hike.

Minor releases in the euro area saw the Italian trade deficit at €0.012B in May and the Spanish trade deficit at €4.76B in the same period.

In the US calendar, the NAHB Index is due seconded by TIC Flows as well as short-term auctions.

What to look for around EUR

The improvement in the risk-associated universe in combination with fresh dollar weakness leaves the door open to further recovery in EUR/USD at the beginning of the week.

The ongoing technical rebound in the pair follows current oversold conditions, although it is unlikely to gather serious traction in this context, and especially before the ECB gathering due later in the week.

In the meantime, the price action around the single currency continues to follow increasing speculation of a probable recession in the euro area, dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

Key events in the euro area this week: EMU Final Inflation Rate (Tuesday) – Flash Consumer Confidence (Wednesday) – ECB Interest Rate Decision, ECB Press Conference, ECB Lagarde (Thursday) – Germany, France, EMU Flash PMIs (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is up 0.72% at 1.0159 and a breakout of 1.0483 (55-day SMA) would target 1.0615 (weekly high June 27) en route to 1.0773 (monthly high June 9). On the flip side, the next contention emerges at 0.0052 (2022 low July 14) seconded by 0.9859 (low December 2002) and finally 0.9685 (low October 2002).