EUR/USD challenges the 1.0500 region ahead of key data

• EUR/USD probes the vicinity of the 1.0500 zone, or new lows.
• The preliminary inflation figures in the euro area come next.
• Later in the day, the focus of attention will be on US Payrolls.

The single currency trades on the defensive vs. the dollar and motivates EUR/USD to trade in an offered fashion around 1.0500 on Friday.

EUR/USD focuses on EMU CPI, US NFP

EUR/USD tests the proximity of the 1.0500 neighbourhood following the sharp pullback seen in the previous session, all against the backdrop of the generalized consolidative pattern seen in the global markets ahead of key data releases on both sides of the Atlantic.

On the latter, advanced inflation figures in the broader Euroland for the month of December will take centre stage later in the European morning, while the US labour market report, Factory Orders and the ISM Non-Manufacturing will grab all the attention in the US data space.

Earlier in the old continent, Retail Sales in Germany contracted at an annualized 5.9% in November.

In the meantime, the German 10-year Bund yields post marginal gains and add to Thursday’s small uptick.

What to look for around EUR

EUR/USD seems to have met some decent contention near 1.0500 so far this week amidst the resumption of the bid bias around the greenback. The pair’s price action will most likely be put to the test in light of key data releases scheduled later in the session.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: Germany Retail Sales, EMU Flash Inflation Rate, EMU Retail Sales.

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the protracted energy crisis on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is losing 0.16% at 1.0504 and the breach of 1.0496 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0311 (200-day SMA). On the other hand, the next up barrier emerges at 1.0713 (weekly high December 30) ahead of 1.0736 (monthly high December 15) and finally 1.0773 (monthly high June 27).