EUR/USD accelerates gains and re-targets 1.0600

• EUR/USD partially reverses Tuesday’s drop and approaches 1.0600.
• Final Services PMIs in the euro area are due next in the docket.
• Investors’ attention remains on the release of the FOMC Minutes.

The European currency regains some balance and leaves behind part of the Tuesday’s strong drop to the 1.0520/15 band vs. the dollar on Wednesday.

EUR/USD looks at data, US calendar

EUR/USD starts the first week of the new year on the defensive after three consecutive weekly advances, although Wednesday’s rebound shifts the focus to a potential test/breakout of the 1.0600 hurdle.

The so far improved mood around the pair comes in response to the knee-jerk in the dollar following the strong bounce seen earlier in the week.

In the German money markets, the 10-year Bund yields appear to be regaining some upside traction following two consecutive daily retracements.

Later in the euro area, the final December Services PMI readings will take centre stage prior to the US ISM Manufacturing and the publication of the FOMC Minutes of the December gathering.

What to look for around EUR

EUR/USD seems to have met some decent contention around 1.0520 so far this week.

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.

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: France Flash Inflation Rate, France Consumer Confidence, Germany Final S&P Global Services PMI, EMU Final S&P Global Services PMI (Wednesday) – Germany Balance of Trade, Germany S&P Global Construction PMI, Italy Flash Inflation Rate (Thursday) – Germany Retail Sales, EMU Flash Inflation Rate, EMU Retail Sales.

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the protracted energy crisis 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 0.37% at 1.0586 and is expected to meet the next up barrier at 1.0713 (weekly high December 30) ahead of 1.0736 (monthly high December 15) and finally 1.0773 (monthly high June 27). On the other hand, the breach of 1.0519 (weekly low January 3) would target 1.0443 (weekly low December 7) en route to 1.0316 (200-day SMA).