EUR/USD: Bears regain control and visit the sub-1.0700 area

• EUR/USD comes under pressure and breaks below 1.0700.
• ECB’s C.Lagarde will speak later at the WEF in Davos.
• The FOMC Minutes will be the salient event later in the NA session.

Sellers seem to be back and force EUR/USD to break below the key support at the 1.0700 yardstick on Wednesday.

EUR/USD focuses on Lagarde, FOMC

After two consecutive daily advances, EUR/USD now faces some corrective downside and retreats to the sub-1.0700 region amidst the resurgence of the bid bias in the greenback.

In the meantime, yields on both sides of the ocean keep the consolidative phase well in place, as the recent increase in the appetite for riskier assets appear to be taking a breather on Wednesday.

Earlier in the session, the German GDP Growth Rate expanded 3.8% YoY in Q1 and the Consumer Confidence tracked by GfK improved a tad to -26 for the month of June. In France, the Consumer Confidence came in short of expectations in May at 86 (from April’s 87).

In the NA session, weekly Mortgage Applications are due seconded by Durable Goods Orders, while the release of the FOMC Minutes will close the daily calendar later in the day.

What to look for around EUR

The sharp rebound in EUR/USD surpassed the 1.0700 mark on the back by the strong resurgence of the risk-on mood.

Despite the pair’s current upside impulse, the broader outlook for the single currency remains in the negative territory 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, however, should appear reinforced by 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: Germany Final Q1 GDP, GfK Consumer Confidence, ECB Lagarde (Wednesday).

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 losing 0.72 at 1.0675 and a breach of 1.0459 (low May 18) would target 1.0348 (2022 low May 13) en route to 1.0340 (2017 low January 3 2017). On the other hand, the next up barrier aligns at 1.0748 (monthly high May 24) followed by 1.0779 (55-day SMA) and finally 1.0936 (weekly high April 21).