EUR/USD regains the smile and advances to 1.0450

• EUR/USD reclaims ground lost around 1.0450.
• US markets are closed due to Independence Day on Monday.
• ECB’s Müller favoured a 25 bps hike in July, 50 bps in September.

The single currency starts the week on a positive note and pushes EUR/USD back to the 1.0450 region on the back of renewed dollar weakness.

EUR/USD looks to risk trends for direction

EUR/USD manages to regain some ground lost following Friday’s strong pullback and extend the rebound north of the 1.0400 hurdle on Monday.

The uptick in the pair comes amidst the inactivity in the US markets and against the backdrop of reduced trade conditions and scarce volatility.

Positive ECB speak saw Board member Müller advocating for a 25 bps rate raise at the July meeting followed by 50 bps hike at the September’s event. In line with these comments, his colleague Vasle said further rate hikes appear likely after September.

In the domestic calendar, trade balance figures in Germany showed a €1B deficit in May. In Spain, the Unemployment Change shrank by 42.409K in June and Producer Prices in the broader Euroland rose 36.3% in the year to May.

What to look for around EUR

EUR/USD remains under pressure and still unable to gather serious upside traction, another proof that sellers remain well in control of the sentiment surrounding the European currency for the time being.

Indeed, the pair is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

Among positives for the euro can be found, however, in higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region. Collaborating with this view also appears the generalized hawkish chatter around ECB’s rate-setters.

Key events in the euro area this week: Germany Balance of Trade (Monday) – Germany, EMU Final Services PMI (Tuesday) – Germany Construction PMI, EMU Retail Sales (Wednesday) – ECB Accounts (Thursday) – ECB Lagarde (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is gaining 0.11% at 1.0438 and a break above 1.0615 (weekly high June 27) would target 1.0773 (monthly high June 9) en route to 1.0786 (monthly high May 30). On the other hand, immediate contention emerges at 1.0382 (weekly low June 30) seconded by 1.0358 (monthly low June 15) and finally 1.0348 (2022 low May 13).