EUR/USD: Bulls regain control and look to revisit 1.0700

• EUR/USD reverses the recent downside and approaches 1.0700.
• ECB’s Villeroy said the normalization of the policy is necessary.
• US ADP report will take centre stage later in the NA session.

The single currency manages to leave behind two sessions with losses and encourages EUR/USD to advance to the vicinity of the 1.0700 region on Thursday.

EUR/USD up on dollar losses

The better tone in the risk complex favours the resumption of the buying interest in EUR/USD, which now trades at shouting distance from the key barrier at 1.0700 the figure.

Sellers, in the meantime, seem to have returned to the greenback and motivate the US Dollar Index (DXY) to give away part of the gains recorded in the last couple of sessions.

The daily improvement in spot comes amidst higher yields in both US and German money markets and after ECB’s Villeroy deemed as necessary the normalization of the bank’s monetary conditions, although he differentiated this process from tightening.

Later in the session, the only release of note in the region will be the EMU’s Producer Prices for the month of April. It will get more interesting across the pond, where the ADP Employment Change is due seconded by Factory Orders and weekly Claims.

In addition, FOMC’s Logan and Mester will also speak later in the NA session.

What to look for around EUR

EUR/USD’s bounce off 2022 lows near 1.0350 (May 13) has been so far underpinned by unusual hawkish ECB-speak leaning towards an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency.

In addition, the renewed selling bias in the greenback has also collaborated with the multi-cent upside in the pair, as investors appear to have already pencilled in a couple of 50 bps rate hikes at the June and July gatherings.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, elevated inflation and a decent pace of the economic recovery in the euro bloc are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: EMU Producer Prices (Thursday) - Germany Balance of Trade, Final Services PMI, EMU Retail Sales, Final Services PMI (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 gaining 0.44% at 1.0691 and faces the immediate up barrier at 1.0786 (monthly high May 30) followed by 1.0936 (weekly high April 21) and finally 1.0965 (100-day SMA). On the other hand, a breach of 1.0627 (weekly low June 1) would target 1.0532 (low May 20) en route to 1.0459 (low May 18).