EUR/USD suffers altitude sickness near 1.0560 ahead of EMU CPI

• EUR/USD falters once again around 1.0560 on Wednesday.
• EMU Final CPI for the month of April comes next in the docket.
• The dollar regains upside traction and forces the pair to give away gains.

EUR/USD loses some momentum after hitting fresh highs in the 1.0560/65 band on Wednesday.

EUR/USD trims gains on USD-buying

EUR/USD retreats moderately following three consecutive daily advances, including the breakout of key levels at 1.0400 and 1.0500 and rebounding sharply from last week’s new cycle lows near 1.0350 (May 13).

The daily decline in spot comes in contrast to the continuation of the rebound in the German 10y Bund yields, which trade at shouting distance from the 1.10% level midweek.

The better tone in the demand for the greenback weighs on the pair on Wednesday, particularly following Chair Powell’s interview late on Tuesday, when he once again left the door open to a 50 bps rate hike at the next two meetings.

In the domestic calendar, the final EMU Inflation Rate for the month of April are due later. Across the pond, MBA Mortgage Applications, Building Permits and Housing Starts are all due seconded by the speech by Philly Fed P.Harker (2023 voter, hawk).

What to look for around EUR

EUR/USD’s strong rebound met initial hurdle at the 1.0560 region so far this week. Despite the pair removed some downside pressure, the broader outlook for the single currency remains entrenched in the negative territory for the time being. As usual, price action in spot should reflect dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by firmer speculation the ECB could raise rates at some point in the summer, while higher German yields, elevated inflation and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: EMU Final Inflation Rate (Wednesday) – ECB Monetary Policy Meeting Accounts (Thursday) – Germany Producer Prices, EMU Flash Consumer Confidence (Friday).

Eminent issues on the back boiler: Speculation of the start of the hiking cycle by the ECB as soon as this summer. Asymmetric economic recovery post-pandemic in the euro area. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is down 0.25% at 1.0519 and the breach of 1.0348 (2022 low May 13) would target 1.0340 (2017 low January 3 2017) en route to 1.0300 (round level). On the other hand, the initial up barrier comes at 1.0563 (weekly high May 18) seconded by 1.0641 (weekly high May 5) and finally 1.0936 (weekly high April 21).