EUR/USD looks optimistic around 1.0550, focuses on US, EMU data

• EUR/USD starts the week on a positive footing near 1.0550.
• German 10y bund yields gradually approach the 1.00% level.
• US ISM Manufacturing next of relevance in the docket.

The single currency extends the positive mood seen last Friday and pushes EUR/USD back to the mid-1.0500s on Monday.

EUR/USD focused on USD, risk trends

EUR/USD posts gains for the second straight session on Monday and manages well to keep business above the 1.0500 yardstick against the backdrop of an inconclusive price action around the greenback.

The European currency might have met some extra support following earlier comments from ECB’s Vice-President, who deemed an ECB interest rate hike in July as feasible albeit kind of unlikely.

Gains in spot also remain underpinned by the continuation of the uptrend in the German 10y bund yields, as they approach the critical 1.00% level for the first time since the summer of 2015.

In the domestic calendar, Retail Sales in Germany contracted 0.1% MoM in March and 2.7% over the last twelve months. Later in the session, the final Manufacturing PMI will be published in Germany and the broader Euroland as well as Consumer Sentiment and Economic Sentiment gauges in the region.

What to look for around EUR

EUR/USD leaves behind part of the recent multi-session sharp selloff and rebounds from 5-year lows around 1.0470 (April 28). 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: Germany Retail Sales, Final Manufacturing PMI, Consumer Confidence, Economic Sentiment (Monday) – Germany Unemployment Rate, Unemployment Change, EMU Unemployment Rate, ECB Lagarde (Tuesday) – Germany Balance Trade, Final Services PMI, EMU Final Services PMI, Retail Sales (Wednesday) – Germany Factory Orders, Construction PMI (Thursday) – Germany Industrial Production (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. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is up 0.05% at 1.0546 and faces the next hurdle at 1.0593 (high April 29) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the other hand, a break below 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017).