EUR/USD climbs to 4-week highs past 1.0730, dollar remains offered

• EUR/USD picks up extra pace and trespasses the 1.0700 barrier.
• The greenback remains on the defensive and drops to 7-month lows.
• EMU Unemployment Rate held steady at 6.5% in November.

Bulls push harder at the beginning of the week and lift EUR/USD to the 1.0730 region for the first time since mid-December.

EUR/USD bolstered by risk-on sentiment, weaker dollar

EUR/USD leaves behind the 1.0700 barrier to clinch fresh multi-week peaks always on the back of the persevering sell-off in the greenback, which comes pari passu with investors’ re-assessment of the potential next steps by the Federal Reserve when it comes to future interest rate hikes.

This change of perspective from market participants have been reignited soon after the publication of the December’s Nonfarm Payrolls last Friday. Indeed, while the mixed tone from the monthly US labour market showed a still healthy job creation, the wage growth seems to have lost some momentum and that is what is leading traders to start pricing in some probable pause in the Fed’s hiking cycle.

On another page, and in the euro docket, the Unemployment Rate in the broader Euroland remained at 6.5% in November, while the Investor Confidence gauged by the Sentix Index improved a tad to -17.5 for the current month.

Across the pond, the Consumer Credit Change will be the sole release as well as 3-month/6-month bill auctions.

What to look for around EUR

EUR/USD has embarked on a strong recovery and has already surpassed the 1.0700 barrier. The extent and duration of the breakout, however, should hinge on the risk trends and dollar dynamics.

In addition, the next steps regarding monetary policy – and particularly the ongoing tightening cycles - from both the ECB and the Fed will be crucial in determining the direction of the pair’s price action in the next months.

Looking at the euro area, 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 Industrial Production, Italy Unemployment Rate, EMU Unemployment Rate/Sentix Index (Monday) – France Industrial Production (Tuesday) – France final Inflation Rate, Germany Full Year GDP Growth, MEU Balance of Trade/Industrial Production (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 protracted energy crisis 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 0.84% at 1.0729 and faces the next resistance level at 1.0736 (monthly high December 15 2022) seconded by 1.0773 (monthly high June 27 2022) and finally 1.0786 (monthly high May 30 2022) On the downside, the breach of 1.0496 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0383 (55-day SMA).