EUR/USD recedes from tops near the 1.0500 barrier

• EUR/USD trims part of the earlier advance to the 1.0500 zone.
• The dollar attempts a rebound from initial multi-month lows.
• Lagarde notes high inflation is dampening spending and production.

The still soft note in the dollar motivates EUR/USD to keep the upside bias well and sound above the 1.0400 barrier.

EUR/USD firm on USD-selling

EUR/USD trims part of its earlier advance to the boundaries of 1.0500 the figure at the beginning of the week on the back of the so far lacklustre recovery in the dollar, while yields keep the inconclusive performance on both sides of the Atlantic so far on Monday.

Nothing scheduled in the euro docket leaves all the attention to the speech by Chair Lagarde before the European Parliament. In fact, Lagarde notes that interest rates remain the exclusive tool for fighting inflation and that fiscal policy must be considerate and not add to inflationary pressures. Lagarde also said that inflation risks remain on the upside, at the time when she declined to comment on whether inflation has peaked.

In the US docket, the Dallas Fed Manufacturing Index is due next ahead of the speech by New York Fed J.Williams.

What to look for around EUR

EUR/USD remains firm and manages to surpass once again the 1.0400 hurdle on the back of some renewed weakness in the dollar amidst alternating risk appetite trends.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence. In addition, markets repricing of a potential pivot in the Fed’s policy remains the exclusive driver of the pair’s price action for the time being.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: ECB Lagarde (Monday) - EMU Final Consumer Confidence, Economic Sentiment, Germany Flash Inflation Rate (Tuesday) - Germany Unemployment Rate, Unemployment Change, EMU Flash Inflation Rate (Wednesday) - Germany Retail Sales, ECB General Council Meeting, Germany/EMU Final Manufacturing PMI, EMU Unemployment Rate (Thursday) - ECB Lagarde, Germany Balance of Trade (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.48% at 1.0434 and faces the next up barrier at 1.0496 (monthly high November 15) ahead of 1.0500 (round level) and finally 1.0614 (weekly high June 27). On the flip side, a breach of 1.0222 (weekly low November 21) would target 1.0032 (100-day SMA) en route to 0.9935 (low November 10).