EUR/USD recedes from fresh tops near 1.0880

• EUR/USD advances to fresh highs near 1.0880 earlier on Monday.
• The dollar gathers some traction after dropping to new lows.
• The Eurogroup meeting will be the salient event later in the session.

The European currency starts the week in a positive fashion and lifts EUR/USD to new highs near 1.0880, where some initial resistance appears to have emerged.

EUR/USD remains supported by risk-on sentiment

EUR/USD resumes the uptrend and sets aside Friday’s corrective knee-jerk on the back of the intense bias towards the risk complex on Monday.

Indeed, the selling pressure around the dollar dragged the USD Index (DXY) to fresh multi-month lows during the Asian trading hours, always against the backdrop of rising speculation of a pivot in the Fed’s normalization process.

In the German money market, the 10-year Bund yields kick in the wek marginally on the defensive below the 2.20% level so far.

In the domestic calendar, the Eurogroup meeting will be in the limelight throughout the session, while German Wholesale Prices contracted 1.6% MoM in December and rose 12.8% over the last twelve months.

The US data space will be empty on Monday.

What to look for around EUR

EUR/USD keeps the bid bias well and sound and trades closer to the round level at 1.0900 the figure on Monday.

Price action around the European currency should continue to closely follow dollar dynamics, as well as the impact of the energy crisis on the euro bloc 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: Eurogroup Meeting (Monday) – ECOFIN Meeting, Germany Final Inflation Rate / ZEW Economic Sentiment, EMU ZEW Economic Sentiment, Italy Final Inflation Rate (Tuesday) -  EMU New Car Registrations / Final Inflation Rate (Wednesday) – ECB Lagarde, ECB Accounts (Thursday) - ECB Lagarde (Friday).

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

EUR/USD levels to watch

So far, the pair is gaining 0.03% at 1.0835 and faces the next up barrier at 1.0874 (monthly high January 16) followed by 1.0900 (round level) and finally 1.0936 (weekly high April 21 2022). On the flip side, the breakdown of 1.0481 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0459 (55-day SMA).