EUR/USD clings to gains above 1.1300, looks to US data

• EUR/USD struggles for direction around 1.1300 on Tuesday.
• German Unemployment Rate ticked lower to 5.2% in December.
• US ISM Manufacturing next of relevance in the calendar.

The single currency looks to leave behind the pessimism seen at the beginning of the year and now pushes EUR/USD back above the 1.1300 mark, recording modest gains so far on Tuesday.

EUR/USD looks supported around 1.1280

Following Monday’s moderate pullback, EUR/USD attempts to regain some upside traction in response to the lack of direction in the US dollar and the steady performance of yields on both sides of the Atlantic.

The appetite for the risk-associated assets, in the meantime, appears firmer on Tuesday amidst declining concerns around the advance of the omicron strain in spite of the increasing COVID cases around the world. Investors, however, seem to favour the “glass half-full” version and look past the global economic recovery coupled with persistent elevated inflation and the probable normalization of monetary conditions by major central banks later in the year.

In Germany, Retail Sales expanded at a monthly 0.6% in November and contracted 0.2% over the last twelve months. Further data saw the Unemployment Change dropping by 23K people in December and the jobless rate ticking lower to 5.2% in the same period.

Later in the NA session, all the attention will be on the release of the December’s ISM Manufacturing.

What to look for around EUR

EUR/USD met quite decent contention in the 1.1280 region so far this week. As the normal activity resumes in the global markets following the festive period, the pair is seen refocusing on the main driver of the pair’s price action, namely the ECB-Fed policy divergence. In the meantime, the unabated progress of the coronavirus pandemic as well as the fast-spreading omicron variant remain as the exclusive factors to look at when it comes to the economic growth prospects and investors’ morale.

Key events in the euro area this week: German Retail Sales, labour market report (Tuesday) - EMU/Germany Final Services PMIs (Wednesday) - Germany Advanced December Inflation Rate (Thursday) - EMU Advanced December Inflation Rate (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. ECB stance/potential reaction to the persistent elevated inflation in the region. ECB tapering speculation/rate path.

EUR/USD levels to watch

So far, spot is gaining 0.08% at 1.1303 and faces the next up barrier at 1.1386 (monthly high November 30) followed by 1.1464 (weekly high Nov.15) and finally 1.1520 (200-week SMA). On the other hand, a break below 1.1273 (weekly low Dec.29) would target 1.1221 (weekly low Dec.15) en route to 1.1186 (2021 low Nov.24).