EUR/USD trades in a vacillating fashion in the mid-1.0800s

• EUR/USD advances to the 1.0870 region earlier on Wednesday.
• The dollar remains bid across the board amidst higher US yields.
• Hawkish ECB speak keeps the pair on the positive side.

EUR/USD clings to daily gains around the 1.0850 region against the backdrop of a firm note in the greenback on Wednesday.

EUR/USD: Weekly gains look capped near 1.0870

EUR/USD trades within the familiar range, up slightly in the mid-1.0800s against the backdrop of the moderate bounce in the greenback.

The better tone in the European currency looks propped up by comments from ECB’s rate setters. Indeed, ECB Board member Kazimir suggested that the core inflation could take a key role when it comes to interest rate decisions at the time when he left the door open to further rate hikes, albeit at a slower pace. In addition, member Lane defended further rate hikes and suggested inflation in the region could drop rapidly by year end.

In the euro calendar, Consumer Confidence tracked by GfK in Germany improved marginally to -29.5 for the month of April (from -30.6), while the Consumer Confidence in France receded to 81 in March (from 82).

In the US, MBA Mortgage Applications expanded 2.9% in the week to March 24 and Pending Home Sales are due later.

What to look for around EUR

The weekly recovery in EUR/USD meets initial resistance near 1.0870 amidst the resumption of some USD-buying.

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 in a context still dominated by elevated inflation, although amidst dwindling recession risks for the time being.

Key events in the euro area this week: Germany GfK Consumer Confidence, France Consumer Confidence (Wednesday) – Germany  Flash Inflation Rate, EMU Consumer Confidence, Economic Sentiment (Thursday) – Germany Retail Sales/Labor Market Report, EMU Flash Inflation Rate/Unemployment Rate, France Flash Inflation Rate, Italy Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Continuation, or not, of the ECB hiking cycle. 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 gaining 0.04% at 1.0846 and a break above 1.0929 (monthly high March 23) would target 1.1032 (2023 high February 2) en route to 1.1100 (round level). On the downside, the next support aligns at 1.0712 (low March 24) followed by 1.0637 (100-day SMA) and finally 1.0516 (monthly low March 15).