EUR/USD retreats from weekly highs near 1.1380, focus on US CPI

• EUR/USD adds to Tuesday’s advance near 1.1380.
• The greenback remains depressed near recent lows.
• Markets’ attention will be on the US inflation figures.

The optimism around the European currency remains well and sound and now lifts EUR/USD to fresh weekly highs in the boundaries of 1.1380 on Wednesday.

EUR/USD targets the YTD highs near 1.1390

EUR/USD advances for the second session in a row on Wednesday, always on the back of the subdued sentiment surrounding the greenback, which has been particularly exacerbated following Chairman Powell’s testimony before the Senate on Tuesday.

The sharp retracement in the buck lent much-needed oxygen to the risk complex during the past session, sponsoring the move higher in spot to shouting distance from the so far YTD peaks near 1.1390 (January 3).

In the meantime, yields of the key US 10y benchmark note appear side-lined below recent tops around 1.80%, while the German counterpart also looks range bound around -0.035%.

Later in the domestic calendar, Industrial Production in Euroland will be the sole release, while the inflation figures for the month of December will grab all the attention across the Atlantic later in the session.

What to look for around EUR

EUR/USD flirts with 2022 highs around 1.1380 amidst the renewed downside pressure hurting the US dollar. In the meantime, the pair’s price action continues to track the performance of the greenback as well as the policy divergence between the ECB vs. the Federal Reserve and the response to the persistent elevated inflation on both sides of the ocean. On another front, the unabated progress of the coronavirus pandemic remains as the exclusive factor to look at when it comes to the economic growth prospects and investors’ morale.

Key events in the euro area this week: EMU Industrial Production (Wednesday) - Germany Full Year GDP Growth 2021, ECB C.Lagarde (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. Italy elects President of the Republic in late January. Presidential elections in France in April.

EUR/USD levels to watch

So far, spot is gaining 0.01% at 1.1367 and faces the next up barrier at 1.1378 (weekly high Jan.12) seconded by 1.1386 (monthly high November 30) and finally 1.1464 (weekly high Nov.15). On the other hand, a break below 1.1272 (weekly low Jan.4) would target 1.1221 (weekly low Dec.15) en route to 1.1186 (2021 low Nov.24).