EUR/USD looks offered but holds on above 1.0700, focus on Lagarde

• EUR/USD extends the corrective downside near 1.0700.
• The greenback regains poise amidst higher yields.
• ECB’s Lagarde, US ISM Manufacturing next of note in the docket.

The offered bias remains well and sound around the European currency and puts EUR/USD under pressure near the 1.0700 mark on Wednesday.

EUR/USD focuses on Lagarde

EUR/USD sheds ground for the second straight session, as the recovery in the greenback appears to have picked up extra pace on Wednesday.

Indeed, the downtick in the pair comes amidst further rebound in US yields along the curve, while the German 10y Bund yields reached new 3-week tops past 1.15%.

No reaction around the euro after ECB’s Holzmann favoured once again hiking rates by 50 bps against the current backdrop of elevated inflation figures.

In the calendar, final figures showed the German Manufacturing PMI improve a tad to 54.8 in May and tick lower to 54.6 when it comes to the broader Euroland. Still on the latter, the Unemployment Rate remained at 6.8% in April. Later in the session, Chairwoman Lagarde will speak at a BIS event.

Across the pond, MBA Mortgage Applications, the final Manufacturing PMI, the ISM Manufacturing, Construction Spending and the Fed’s Beige Book are all due along with speeches by FOMC’s Williams and Bullard.

What to look for around EUR

EUR/USD’s bounce off 2022 lows near 1.0350 (May 13) has been so far underpinned by unusual hawkish ECB-speak leaning towards an initial rate hike as soon as in July, while the consensus view that the bond-purchase programme should end at some point in early Q3 has also lent legs to the European currency.

In addition, the renewed selling bias in the greenback has also collaborated with the multi-cent upside in the pair, as investors appear to have already pencilled in a couple of 50 bps rate hikes at the June and July gatherings.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, elevated inflation and a decent pace of the economic recovery in the euro bloc are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: Germany Unemployment Change, Unemployment Rate, EMU Flash Inflation Rate (Tuesday) – Germany Retail Sales, Final Manufacturing PMI, EMU Final Manufacturing PMI, ECB Lagarde (Wednesday) – Germany Balance of Trade, Final Services PMI, EMU Retail Sales, Final Services PMI (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 retreating 0.08% at 1.0722 and a breach of 1.0678 (weekly low May 31) would target 1.0641 (low May 25) en route to 1.0532 (low May 20). On the other hand, the next up barrier emerges at 1.0786 (monthly high May 30) followed by 1.0936 (weekly high April 21) and finally 1.0974 (100-day SMA).