EUR/USD bounces off new 2021 lows near 1.1260 ahead of ECB

• EUR/USD accelerated the downside to the 1.1260 region.
• The dollar clinched new 16-month peaks past 96.00.
• Final October EMU CPI, ECB-speak due next.

The single currency manages to regain the composure somewhat and now motivates EUR/USD to regain the 1.1300 mark and beyond on Wednesday.

EUR/USD focuses on dollar, Lagarde

After bottoming out in the vicinity of 1.1260, or new cycle lows, EUR/USD seems to have met some dip buyers that pushed spot back above 1.1300 the figure.

The sharp pullback in the pair remains well sustained by dollar strength, in turned propped up by yields dynamics, inflation concerns and market chatter regarding the increasing possibility that the Fed could move on rates before expected (2022 maybe?).

No news from the cash markets on both sides of the Atlantic, as yields of the 10y Bund remain side-lined around -0.25% and the US 10y reference hover around the 1.63% zone so far.

In the docket, final inflation figures in the euro area for the month of October are due next. In addition, Chairwoman C.Lagarde will publish a video message and attend an event in Germany, while Board member I.Schnabel will speak on the economic and monetary policy outlook.

Across the pond, a slew of Fed-speakers are expected to keep investors entertained around the tapering/inflation/lift-off issues. In the US data space, Housing Starts, Building Permits and the MBA Mortgage Approvals are scheduled later in the session.

What to look for around EUR

EUR/USD sank to new lows near 1.1260 on Wednesday amidst the persistent deterioration in the pair and the indefatigable rebound in the buck. As usual, the pair’s price action is predicted to mainly track the dynamics around the dollar, while bouts of intermittent strength expected to come from the improvement in the risk complex. On the more macro view, the loss of momentum in the economic recovery in the region - as per some weakness observed in key fundamentals – coupled with rising cases of COVID-19 is also seen pouring cold water over investors’ optimism. Further out, the euro should remain under scrutiny amidst the implicit debate between investors’ speculations of a probable lift-off sooner than anticipated and the ECB’s so far steady hand, all amidst the tenacious elevated inflation in the bloc and increasing conviction that it could last longer than previously anticipated.

Key events in the euro area this week: EMU Final CPI, ECB Lagarde (Wednesday) – ECB Lagarde (Friday).

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

EUR/USD levels to watch

So far, spot is down 0.05% at 1.1314 and faces the next up barrier at 1.1467 (10-day SMA) followed by 1.1539 (20-day SMA) and finally 1.1609 (weekly high Nov.9). On the other hand, a break below 1.1263 (2021 low Nov.17) would target 1.1185 (monthly low Jul.1 2020) en route to 1.1168 (low Jun.19 2020).