EUR/USD looks wary, clings to 1.0700 ahead of the ECB

• EUR/USD comes under pressure near 1.0700.
• German 10y Bund yields approach 1.40%.
• The ECB is expected to keep the policy rate unchanged.

The single currency wobbles between gains and losses and motivates EUR/USD to trade within a volatile note around the 1.0700 region on Thursday.

EUR/USD focuses on the ECB

EUR/USD trades in an unresolved fashion so far on Thursday, gyrating around the 1.0700 neighbourhood amidst rising cautiousness ahead of the ECB event later in the session.

Indeed, the central bank is expected to leave the policy rate unchanged (for the last time?), while bets for a hawkish tone from both the Council and Chair Lagarde at her subsequent press conference remain on the rise. On the latter, it could be a big disappointment for bulls otherwise.

Nothing other than the ECB gathering in the domestic calendar, whereas the usual weekly Claims are due across the pond.

What to look for around EUR

EUR/USD continues to trade in a side-lined mood near 1.0700 for the time being.

The pair’s recent multi-week recovery has been on the back of supportive ECB-speak, which continued to point at 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.

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, persistent elevated inflation in the euro area 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: ECB Interest Rate Decision (Thursday).

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 bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is losing 0.01% at 1.0715 and a breach of 1.0627 (monthly low June 1) would target 1.0532 (low May 20) en route to 1.0459 (low May 18). On the other hand, immediate up barrier emerges at 1.0786 (monthly high May 30) seconded by 1.0933 (100-day SMA) and finally 1.0936 (weekly high April 21).