EUR/USD loses the grip and flirts with the 1.0660 region

• EUR/USD drops to 2-day lows near 1.0660 on Wednesday.
• ECB C.Lagarde is due to speak later in the day.
• US Retail Sales surprised to the upside in January.

The now strong rebound in the greenback puts the risk universe under further pressure and forces EUR/USD to trade at shouting distance from the monthly lows on Wednesday.

EUR/USD: Selling pressure picks up pace on US data

EUR/USD saw its daily knee-jerk pick up pace after the greenback’s rebound gathered further steam on Wednesday.

Indeed, the selling pressure keeps the pair’s price action depressed and near the February low around 1.0650, particularly following solid prints from US Retail Sales for the month of January, while further upside in US yields across the curve also prop up the dollar.

Additional releases in the US calendar saw the NY Empire State Manufacturing Index improve to -5.8 for the month of February, while Industrial Production expanded 0.8% in the year to January and came in flat vs. the previous month.

Next on tap will be the NAHB index as well as Business Inventories.

What to look for around EUR

Despite the recent rebound to the 1.0800 region, EUR/USD remains within the multi-day consolidative phase and decently supported near 1.0650 for the time being.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB after the bank has already anticipated another 50 bps rate raise at the March event.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.

Key events in the euro area this week: EMU Balance of Trade, Industrial Production, ECB Lagarde (Wednesday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is retreating 0.57% at 1.0680 and a drop below 1.0655 (weekly low February 13) would target 1.0481 (2023 low January 6) en route to 1.0324 (200-day SMA). On the flip side, the next up barrier aligns at 1.0804 (weekly high February 14) seconded by 1.1032 (2023 high February 2) and finally 1.1100 (round level).