EUR/USD records new 2-month highs near 1.1480, dollar slumps

• EUR/USD gains extra pace and approaches the 1.1500 mark.
• The dollar loses further ground and drops to multi-week lows.
• ECB-speak, US labour market results next on the calendar.

The upbeat note in the risk complex now pushes EUR/USD to fresh 2-month highs in the 1.1480 region on Thursday.

EUR/USD up on dollar’s selloff

EUR/USD advances for the third session in a row on Thursday and extends the recent breakout of the multi-week consolidative phase that has been prevailing since the beginning of December 2021.

The strong leg higher in the pair comes on the back of the renewed and noticeable selloff in the greenback, which has been particularly exacerbated after US inflation figures showed the raise in the annual CPI matched previous estimates in December (+7.0%).

The daily retracement in the buck comes amidst a mild correction in US yields and the German 10y Bund, although they manage to still keep business near recent tops.

In the domestic calendar, ECB’s Vice-President De Guindos and Board member Hakkarainen will speak during the European morning amidst the absence of noteworthy releases in the region.

Across the pond, Producer Prices and Initial Claims will take centre stage followed by speeches by FOMC’s Harker and Evans and the testimony by FOMC’s L.Brainard.

What to look for around EUR

EUR/USD pops higher and already flirts with the key 1.1500 neighbourhood, or 2-month tops. The acute pullback in the US dollar follows the somewhat “disappointing” US inflation figures during December, although they did not change the view that the Federal Reserve could likely start its tightening cycle as soon as at the March meeting, exacerbating the policy divergence between the ECB vs. the Fed. On another front, the unabated advance of the coronavirus pandemic remains as the exclusive factor to look at when it comes to economic growth prospects and investors’ morale.

Key events in the euro area this week: 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 0.24% at 1.1468 and faces the next up barrier at 1.1508 (100-day SMA) followed by 1.1516 (200-week SMA) and finally 1.1692 (monthly high Oct.18 2021). On the other hand, a break below 1.1357 (55-day SMA) would target 1.1272 (2022 low Jan.4) en route to 1.1221 (monthly low Dec.15 2021).