EUR/USD comes under pressure after new tops near 1.0550, looks at US NFP

• EUR/USD clinches fresh 6-month tops near 1.0550 on Friday.
• Germany’s trade surplus widened to €6.9B in October.
• US Nonfarm Payrolls will take centre stage later in the session.

The European currency now comes under some mild pressure and motivates EUR/USD to retreat to the 1.0520 region following earlier peaks near 1.0550 on Friday.

EUR/USD alternates gains with losses ahead of US data

EUR/USD now struggles to keep the strong weekly rebound well and sound above the 1.0500 hurdle soon after hitting new 6-month highs near 1.0550.

In the meantime, the continuation of the decline in the dollar continues to underpin the upbeat momentum in the pair, which gathered extra steam after surpassing the critical 200-day SMA (1.0365) and the 10-month line around 1.0410.

The daily improvement in the pair is also accompanied by another decline in the German 10-year bund yields, this time breaking below the 1.80% level, an area last seen back in early October.

Earlier in the domestic docket, Germany’s trade surplus increased to €6.9B in October (from €3.7B).

Moving forward, the release of the US Nonfarm Payrolls for the month of November (200K exp.) will take centre stage seconded by the Unemployment Rate (3.7% exp.). In addition, Chicago Fed C.Evans is also due to speak.

What to look for around EUR

EUR/USD manages to extend the rally to the vicinity of 1.0550, or multi-month peaks, amidst persistent optimism in the risk complex and intense weakness in the dollar ahead of US Payrolls.

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, 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 losing 0.05% at 1.0520 and a breach of 1.0365 (200-day SMA) would target 1.0330 (weekly low November 28) en route to 1.0222 (weekly low November 21). On the upside, there is an initial hurdle at 1.0548 (monthly high December 2) ahead of 1.0614 (weekly high June 27) and finally 1.0773 (monthly high June 27).