EUR/USD picks up pace and advances further north of 1.0400

• EUR/USD climbs to 2-day highs near 1.0430 on Monday.
• German 10y Bund yields flirt with the key 1.00% mark.
• The European Commission sees a lower GDP this year.

The optimism around the risk complex remains well and sound and helps EUR/USD advance to new 2-day highs around 1.0430 on Monday.

EUR/USD bolstered by risk-on trade

EUR/USD posts gains for the second session in a row following the continuation of investors’ appetite for riskier assets at the beginning of the week.

In addition, the recovery in the German 10y bund yields to the boundaries of the psychological 1.00% mark also adds extra colour to the pair, which so far manages to leave behind the area of recent lows near 1.0340.

In the domestic calendar, the European Commission (EC) published its Spring Forecasts and now sees the region’s economy expanding 2.7% this year and 2.3% in 2023 (from 4.3% and 2.4%, respectively). Regarding inflation, the EC now expects the HICP to rise 6.1% in 2022 and 2.7% in the next year, still well above the ECB’s target.

Further data in the euro area saw the trade deficit increase to€16.4B in March. Data wise in the US, the NY Empire State Index and the TIC Flows are due along the speech by NY Fed J.Wiliiams.

What to look for around EUR

EUR/USD battles to retake the are above the 1.0400 mark on a convincing fashion amidst the recent improvement of the risk trends, while the outlook for the single currency remains well entrenched in 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: European Commission Spring Forecasts (Monday) – EMU Flash GDP Growth Rate, ECB Lagarde (Tuesday) – EMU Final Inflation Rate (Wednesday) – ECB Monetary Policy Meeting Accounts (Thursday) – Germany Producer Prices, EMU Flash Consumer Confidence (Friday).

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro area. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is up 0.12% at 1.0421 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 1.0348 (2022 low May 13) would target 1.0340 (2017 low January 3 2017) en route to 1.0300 (round level).