EUR/USD: Bulls regain control near 1.0250

• EUR/USD reverses the initial pullback to 1.0180.
• ECB’s Kazaks favoured a “significant” hike in September.
• Germany’s Business Climate surprised to the downside in July.

The single currency regains composure and pushes EUR/USD back to the upper end of the familiar range near 1.0260 on Monday.

EUR/USD bid on USD-selling

EUR/USD extends the choppy performance so far at the beginning of the week amidst the continuation of the corrective downside in the greenback, which prompts the US Dollar Index (DXY) to retreat for the third session in a row.

The upbeat mood in the pair looks also underpinned by comments from ECB’s Board member Kazaks, who seemed to share the view of 150 bps rate hikes by June, at the time when he also advocated for a “significant” hike at the September event.

No reaction in the FX space after the German Business Climate measured by the IFO Institute grinded lower to 88.6 in July. In addition, IFO officials said the German economy remains close to a recession, a view fueled by high energy prices and potential shortages of gas in the next months. The same source added that companies see further deterioration in the index in the upcoming months.

In the US calendar, the Chicago Fed National Activity Index stayed unchanged at -0.19 in June, while the Dallas Fed Manufacturing Index is due later.

What to look for around EUR

EUR/USD managed to put further distance from sub-parity levels seen earlier in the month and approached the 1.0300 neighbourhood during last week.

The pair now looks side-lined as market participants continue to gauge the latest ECB announcements and appear cautious ahead of the upcoming FOMC event on Wednesday.

In the meantime, the price action around the European currency closely follows 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: Germany IFO Business Climate (Monday) – Germany GfK Consumer Confidence (Wednesday) – EMU Final Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Thursday) – Germany Unemployment Change, Unemployment Rate, Flash Q2 GDP, EMU Flash Inflation Rate, Advanced Q2 GDP (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Effervescence around Italian politics following Draghi’s exit. Fragmentation risks amidst the ECB’s normalization of monetary conditions. Performance of the economic recovery post-pandemic in the region. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is gaining 0.25% at 1.0239 and a breakout of 1.0278 (weekly high July 21) would target 1.0452 (55-day SMA) en route to 1.0615 (weekly high June 27). On the flip side, immediate contention emerges at 1.0129 (low July 22) seconded by 0.9952 (2022 low July 14) and finally 0.9859 (low December 2002).