EUR/USD: Bulls lack conviction above 1.0400

• EUR/USD trims initial gains beyond the 1.0400 mark on Friday.
• German 10y Bund yields reverse part of the recent decline.
• EMU Industrial Production contracted less than expected in March.

The better sentiment in the risk-linked complex helped EUR/USD regain some poise and retake the 1.0400 hurdle and beyond earlier on Friday.

EUR/USD could still visit 1.0340

Despite the current bullish attempt, price action around EUR/USD keeps pointing to the likeliness of a deeper pullback in the short-term horizon and with the immediate target at the 2017 low at 1.0340 (January 3).

As usual, the negative stance in the pair follows the constructive perspective around the greenback, always against the backdrop of the tighter normalization of the Fed’s monetary conditions in the next months.

Friday’s improvement in the European currency also echoes in the German 10y Bund yields, which manage to return to the positive territory after four consecutive daily retracements.

In the domestic calendar, Industrial Production in the broader Euroland contracted at a monthly 1.8% in March and 0.8% over the last twelve months. Later in the NA session, the preliminary U-Mich Consumer Sentiment for the current month is due seconded by the speech by Fed’s Kashkari.

What to look for around EUR

EUR/USD battles to retake the 1.0400 mark on a convincing fashion amidst the recent worsening of the risk trends, while the outlook for the single currency remains entrenched into the negative view for the time being. As usual, price action in spot should reflect dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by firmer speculation the ECB could raise rates at some point in the summer, 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: EMU 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 0.06% at 1.0384 and faces the next hurdle at 1.0641 (weekly high May 5) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level). On the other hand, the breach of 1.0353 (2022 low May 12) would target 1.0340 (2017 low January 3 2017) en route to 1.0300 (round level).