EUR/USD fades the spike to weekly highs around 1.1180

• EUR/USD clinches fresh tops in the 1.1180/85 band.
• Germany Unemployment Change dropped less than estimated.
• US PCE, weekly Claims next of importance in the NA session.

EUR/USD embarked on a corrective downside soon after hitting fresh weekly highs in the 1.1180/85 band on Thursday.

EUR/USD looks to USD, geopolitics

EUR/USD now comes under some selling pressure following three consecutive daily gains on the back of the now better tone in the greenback and in response to lower-than-expected results from the German labour market.

On the latter, Germany’s Unemployment Change dropped by 18K persons in March (vs. -20K forecast) and the Unemployment Rate stayed put at 5.0%. Earlier in the session, and still in Germany, Retail Sales expanded 0.3% MoM in February and 7% over the last twelve months.

The knee-jerk in spot comes in line with the recovery in the demand for bonds in the global markets, with the German 10y bund yields now easing to the 0.62% area following Tuesday’s cycle peaks near 0.75%.

Also lending some legs to the buck appears renewed concerns from the Ukraine war after the initial optimism from peace talks on Wednesday seems to have faded away.

Later in the session, the Unemployment Rate is due in the broader Euroland along with a speech by ECB’s De Guindos. Across the pond, inflation figures gauged by the PCE will take centre stage seconded by usual weekly Claims, Personal Income/Spending and the Chicago PMI.

What to look for around EUR

EUR/USD extends recent gains and advances to the vicinity of the 1.1200 mark earlier in the session. Pockets of strength in the single currency should appear reinforced by the speculation of the start of the hiking cycle by the ECB at some point by year end, while higher German yields, elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region are also supportive of a rebound in the euro.

Key events in the euro area this week: Germany Retail Sales, Unemployment Change, Unemployment Rate, EMU Unemployment Rate (Thursday) – Final EMU, Germany Manufacturing PMI, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Impact of the geopolitical conflict in Ukraine.

EUR/USD levels to watch

So far, spot is losing 0.25% at 1.1130 and faces the next up barrier at 1.1184 (weekly high March 31) followed by 1.1195 (55-day SMA) and finally 1.1248 (100-day SMA). On the other hand, a drop below 1.0944 (weekly low March 28) would target 1.0900 (weekly low March 14) en route to 1.0805 (2022 low March 7).