EUR/USD adds to recent gains and retakes 1.1600 and above

• EUR/USD extends the weekly rebound beyond 1.1600.
• Persistent selling pressure in the dollar helps the pair’s upside.
• US Retail Sales, U-Mich Index take centre stage later on Friday.

The optimism around the single currency and the broader risk complex remains well and sound and now pushes EUR/USD back above the key 1.1600 barrier at the end of the week.

EUR/USD up on dollar selling

EUR/USD advances for the third consecutive session for the first time since late August on Friday, always in response to the steady/bearish stance surrounding the greenback and the investors’ appetite for riskier assets.

The move higher in spot comes on the back of the recovery in yields of the German 10-year Bund along with the rebound in US yields in the belly and the long end of the curve.

In the docket, the final CPI in France rose 2.2% in a year to September while the Italian CPI advanced 2.5% during the same period. Additionally, the trade surplus in the Euroland shrank abruptly to €4.8B during August.

Later in the NA calendar, September’s Retail Sales will be in the limelight along with the U-Mich index, the NY Empire State Index as well as Export and Import Prices.

What to look for around EUR

EUR/USD woke up and regained the 1.1600 mark on the back of the corrective downside in the dollar following recent YTD highs. Despite the move higher, the pair still could not close a session above that barrier. In the meantime, dollar dynamics are expected to keep dictating the price action around the pair for the time being. The firmer tone in the buck along with higher US yields and bouts of risk aversion – particularly in response to inflation jitters and the energy crunch - continue to undermine the performance of the risk universe, while the growth outlook appears under pressure on rising speculations that the inflation could take longer to reverse the ongoing elevated levels. In addition, the likely loss of momentum in the economic recovery, as per some weakness seen in key fundamentals, also caps the upside potential in the pair.

Key events in the euro area this week : European Council Meeting, EMU Balance of Trade (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the Delta variant of the coronavirus and pace of the vaccination campaign. Probable political effervescence around the EU Recovery Fund. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is gaining 0.08% at 1.1606 and faces the next up barrier at 1.1624 (weekly high Oct.14) followed by 1.1640 (weekly high Oct.4) and finally 1.1727 (55-day SMA). On the other hand, a break below 1.1576 (10-day SMA) would target 1.1524 (2021 low Oct.12) en route to 1.1495 (high Mar.9 2020).