EUR/USD trims losses and regains 1.0500 post-US GDP

• EUR/USD reclaims the area above the 1.0500 level.
• German flash CPI seen at 7.4% YoY in April.
• US GDP expected to have contracted 1.4% YoY in Q1.

The single currency abandons the area of recent lows and encourages EUR/USD to advance past 1.0500 following unexpected results in the US calendar.

EUR/USD bounces off lows on US data

EUR/USD now attempts some tepid bounce after the first revision of US GDP showed the economy is expected to have contracted 1.4% on an annualized view during the January-March period.

However, the negative performance of the pair appears unchanged against the backdrop of a stronger dollar, while yields on both sides of the ocean now left behind the initial pessimism and returned to the positive territory.

In the domestic calendar, preliminary inflation figures in Germany noted the CPI is seen rising 7.4% in the year to April and 0.8% vs. the previous month.

What to look for around EUR

EUR/USD’s price action shows further deterioration and revisits the sub-1.0500 area for the first time since January 2017. 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. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: 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 0.48% at 1.0504 and a break below 1.0480 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017). On the upside, the next hurdle appears at 1.0936 (weekly high April 21) seconded by 1.1000 (round level) and finally 1.1005 (55-day SMA).