EUR/USD looks depressed near 1.0700, USD in new cycle tops

• EUR/USD comes under heavy pressure near 1.0700.
• German 10y bund yields break below the 0.90%.
• Germany IFO survey surprised to the upside in April.

The single currency started the week well into the negative territory and dragged EUR/USD to the 1.0700 region earlier on Monday.

EUR/USD weak on risk-off mood

EUR/USD adds to the pessimism seen in the second half of last week and extends the leg lower to the boundaries of the 1.0700 yardstick at the beginning of the week.

The sharp selloff in the European currency follows fresh concerns over the impact of current lockdown measures on the Chinese economy, which have also spread to the broader risk-linked galaxy.

In the domestic calendar, Business Climate in Germany unexpectedly improved to 91.8 for the current month. Despite the positive surprise in this key event, the euro failed to spark a noticeable bounce.

Data wise across the pond, the Chicago Fed National Activity Index will be the salient event later in the NA session.

What to look for around EUR

EUR/USD’s price action shows further deterioration and revisits the 1.0700 neighbourhood at the beginning of the week. The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. As usual, occasional pockets of strength in the single currency should appear reinforced by speculation the ECB could raise rates before the end of the year, 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 IFO Business Climate (Monday) – Germany GfK Consumer Confidence (Wednesday) – ECB 2021 Annual Report, Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Thursday) – Germany, EMU Flash Q1 GDP Growth Rate, 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. Second round of the presidential elections in France (April 24). Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is down 0.58% at 1.0733 and a break below 1.0707 (2022 low April 25) would target 1.0700 (round level) en route to 1.0635 (2020 low March 23). On the upside, the next hurdle appears at 1.0936 (weekly high April 21) seconded by 1.1000 (round level) and finally 1.1051 (55-day SMA).