EUR/USD looks firmer and advances to 6-month peaks past 1.0500

• EUR/USD gathers extra steam and surpasses the 1.0500 mark.
• The dollar remains offered and trades in multi-week lows.
• US ISM Manufacturing comes next in the calendar.

EUR/USD extends the upside momentum to new multi-month peaks north of the 1.0500 barrier on Thursday.

EUR/USD now looks to US ISM

EUR/USD looks strong and extends the recent brewakout of the key 200-day SMA as well as the 10-month resistance line, opening the door at the same time to the continuation of the uptrend, at least in the near term.

The renewed and pronounced selling pressure in the greenback lent further wings to the rebound in spot so far, all after Chief Powell reinforced the idea that the Fed could slow the pace of the upcoming interest rate hikes in the next months at his speech on Wednesday.

Following the above, the probability of a half-point rate raise at the Fed’s 14 December meeting is now at almost 80% according to CME Group’s FedWatch Tool.

Earlier in the euro area, German Retail Sales contracted 2.8% MoM in October and 5.0% over the last twelve months, while the final Manufacturing PMI rose to 46.2 in November (from 45.1). In the broader Euroland, the Unemployment Rate improved to 6.5% in October, while the final Manufacturing PMI also advanced to 47.1 (from 46.4).

In the US, the headline PCE rose 6.0% YoY in October and 5.0% when comes to the Core PCE. In addition, weekly Claims rose by 225K in the week to November 26 and Personal Income and Personal Spending expanded at a monthly 0.7% and 0.8%, respectively, in October.

Later in the session, the US ISM Manufacturing is expected to grab all the attention ahead of speeches by Fed’s Logan, Bowman and Barr.

What to look for around EUR

EUR/USD sees its upside bias renewed on Thursday in response to the continuation of the downside bias in the dollar.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence. In addition, markets repricing of a potential pivot in the Fed’s policy remains the exclusive driver of the pair’s price action for the time being.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: Germany Retail Sales, ECB General Council Meeting, Germany/EMU Final Manufacturing PMI, EMU Unemployment Rate (Thursday) - ECB Lagarde, Germany Balance of Trade (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the persistent energy crunch on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.95% at 1.0505 and faces the next up barrier at 1.0513 (weekly high December 1) ahead of 1.0614 (weekly high June 27) and finally 1.0773 (monthly high June 9). On the flip side, a breach of 1.0330 (weekly low November 28) would target 1.0222 (weekly low November 21) en route to 1.0042 (100-day SMA).