EUR/USD climbs to 4-week highs near 1.0200

• Renewed buying interest lifts EUR/USD to the vicinity of 1.0200.
• German 10-year Bund yields trade on the defensive below 1.70%.
• ECB’s De Guindos declined to comment on how high rates could go.

The European currency adds to Friday’s gains and pushes EUR/USD to fresh multi-week highs just below 1.0200 the figure at the beginning of the week.

EUR/USD up on weaker dollar

EUR/USD advances for the second session in a row and flirts with the 1.0200 neighbourhood in response to the intense sell-off in the greenback, which forces the US Dollar Index (DXY) to break below the 108.00 support and record new multi-week lows.

Extra gains in the pair seem to have picked up extra pace following the unprecedented 75 bps interest rate hike by the ECB at its event on September 8, while Monday’s market chatter around the probability that interest rates in the region could move to restrictive territory also lent legs to the single currency.

The strong rebound in the pair, however, comes in contrast to the corrective decline in the German 10-year Bund yields, which breach the 1.70% yardstick after poking with 1.80% at the end of last week.

Still around the ECB, Vice-President De Guindos said he does not know how high rates could climb at the time when he stressed that the recent 75 bps hike is expected to anchor inflation expectations.

In the domestic docket, a minor release includes Germany’s Current Account, while short-term bill auctions and medium-term note auctions are only due across the pond later in the NA session.

What to look for around EUR

EUR/USD pushes higher and briefly tested the key 7-month resistance line in the 1.0200 neighbourhood amidst the persistent selling pressure hitting the US dollar.

So far, price action around the European currency is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

On the negatives for the single currency emerge the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment gauges as well as an incipient slowdown in some fundamentals.

Key events in the euro area this week: Germany Final Inflation Rate, Germany/EMU ZEW Economic Sentiment (Tuesday) – EMU Industrial Production (Wednesday) – France Final Inflation Rate, EMU Balance of Trade (Thursday) – Italy, EMU Final Inflation rate (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. Fragmentation risks amidst the ECB’s normalization of its monetary conditions. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook.

EUR/USD levels to watch

So far, the pair is advancing 1.16% at 1.0160 and now faces the initial barrier at 1.0197 (weekly high September 12) followed by 1.0202 (August 17 high) and then 1.0338 (100-day SMA). On the flip side, the breakdown of 0.9863 (2022 low September 6) would target 0.9859 (December 2002 low) en route to 0.9685 (October 2002 low).