EUR/USD comes under pressure below 1.1300

• EUR/USD gives away Thursday’s advance and resumes the downside.
• German Producer Prices surprised to the upside in October.
• ECB’s Lagarde sees inflation picking up pace by year end.

The optimism around the single currency was short-lived. Indeed, EUR/USD resumes the prevailing downtrend on Friday, only interrupted by the positive price action witnessed on the previous session.

EUR/USD looks to Lagarde, dollar

EUR/USD hovers round the 1.1300 neighbourhood after a brief test of daily lows near 1.1280 during early trade.

The resumption of the upside pressure in the dollar despite the soft note in US yields along the curve allows the US Dollar Index (DXY) to regain traction and flirt once again with the 96.00 zone, or 2-day tops.

On the ECB’s front, Chairwoman Lagarde now sees inflation gathering further pace by year end, while factors pushing consumer prices higher are expected to fade over the medium term. She also said that inflation needs to clinch the bank’s 2% goal on a durable basis.

In the euro docket, German Producer Prices rose more than expected in October at a monthly 3.8% and 18.4% over the last twelve months. Additionally, the EMU’s Current Account surplus rose to €26.9 in September (from €17.6B).

What to look for around EUR

EUR/USD quickly faded Thursday’s bullish attempt and now remains focused on the downside, where the 2021 low near 1.1260 emerges as the next magnet for bears. As usual, the pair’s price action is predicted to mainly track the dynamics around the buck, while bouts of intermittent strength are 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: 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 losing 0.62% at 1.1301 and faces the next up barrier at 1.1422 (10-day SMA) followed by 1.1464 (weekly high Nov.15) and finally 1.1509 (20-day SMA). 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).