EUR/USD regains the smile above 1.1600, looks to US data

• EUR/USD reclaims the 1.1600 mark after two drops in a row.
• The greenback trades on the defensive and fades recent strength.
• German GfK Consumer Confidence surprised to the upside.

The single currency leaves behind the recent offered bias and lifts EUR/USD back above the 1.1600 mark on Wednesday.

EUR/USD cautious ahead of the ECB

EUR/USD regains some composure and manages to surpass the key hurdle at 1.1600 the figure on Wednesday, always on the back of the resumption of the offered bias around the greenback.

The rebound in spot is accompanied by another uptick in yields of the German 2y note to the -0.65% area, while the 10y Bund yields also advance to levels below -0.13%. In the US cash markets, yields in the front end of the curve trade in levels last seen in March 2020 past 0.50%, while the 1oy yields post modest gains above 1.62%.

The pair is expected to extend the consolidative mood ahead of the ECB event on Thursday. Consensus among market participants expects Chairwoman Lagarde to talk down speculations of a potential interest rate hike by end of 2022, while the centre of the debate will once again be the elevated inflation in the region and the central bank’s view on its duration and actions to tackle it.

In the domestic docket, the German GfK Consumer Confidence improved to 0.9 for the month of November, while Import Prices rose 1.3% MoM in September and 17.7% from a year earlier. In the NA session, Durable Goods Orders and Balance of Trade figures are expected to take centre stage.

What to look for around EUR

EUR/USD regains some upside traction and manages to retest the 1.1600 region on Wednesday. While the improvement in the sentiment surrounding the risk complex lent extra wings to the par in past sessions, price action is expected to keep looking to dollar dynamics for the time being, where tapering chatter remains well in centre stage. In the meantime, the idea that elevated inflation could last longer coupled with the loss of momentum in the economic recovery in the region, as per some weakness observed in key fundamentals, are seen pouring cold water over investors’ optimism as well as bullish attempts in the European currency.

Key events in the euro area this week: German GfK Consumer Confidence (Wednesday) – German labour market report, EMU final Consumer Confidence, ECB meeting, German flash CPI (Thursday) – Advanced German Q3 GDP, flash EMU CPI (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the region. Sustainability of the pick-up in inflation figures. Probable political effervescence around the EU Recovery Fund in light of the rising conflict between the EU, Poland and Hungary. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is gaining 0.11% at 1.1607 and faces the next up barrier at 1.1669 (monthly high Oct.19) followed by 1.1702 (55-day SMA) and finally 1.1755 (weekly high Sep.22). On the other hand, a break below 1.1584 (weekly low Oct.26) would target 1.1571 (low Oct.18) en route to 1.1524 (2021 low Oct.12).