EUR/USD climbs to daily highs past 1.0450

• EUR/USD advances to 3-day highs above 1.0450.
• The dollar melts amidst solid risk-on sentiment.
• Final PMIs, US ISM Manufacturing next of note in the docket.

The European currency remains well bid and lifts EUR/USD well north of the 1.0400 hurdle on Thursday.

EUR/USD stronger on USD-selling, looks to data

EUR/USD adds to Wednesday’s gains and manages to reclaim the 1.0400 mark and beyond on Thursday, as market participants continue to digest Chair Powell’s speech on Wednesday and the appetite for the riskier assets gathers extra pace.

Indeed, the greenback accelerates its sell-off after Fed’s Powell reinforced the view that a moderation in the pace of future interest rate hikes would be appropriate. So far, a 50 bps interest rate hike at the Fed’s December 14 event looks the most likely scenario.

In the docket, Germany’s Retail Sales are due next ahead of final Manufacturing PMIs in the rest of the region. Across the pond, inflation tracked by the PCE and the ISM Manufacturing will take centre stage.

What to look for around EUR

EUR/USD sees its upside bias renewed on Thursday in response to the continuation of the downside bias in the dollar.

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: 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 0.46% at 1.0453 and faces the next up barrier at 1.0496 (monthly high November 28) ahead of 1.0500 (round level) and finally 1.0614 (weekly high June 27). On the flip side, a breach of 1.0330 (weekly low November 28) would target 1.0222 (weekly low November 21) en route to 1.0042 (100-day SMA).