EUR/USD regains the smile and the 1.0700 region

• EUR/USD rebounds from monthly lows near 1.0670.
• The dollar gives away further ground after Powell’s comments.
• Retail Sales in Italy surprised to the upside in December.

Following fresh lows in the vicinity of 1.0670 on Tuesday, EUR/USD manages to regain some balance and advance north of 1.0700 the figure on Wednesday.

EUR/USD: Next target comes at 1.0800

EUR/USD trades with decent gains and reclaims the 1.0750 region on the back of the renewed selling pressure surrounding the greenback midweek.

Extra wings to the upside bias in the pair also comes from increasing investors’ appetite for the risk-associated assets in a context where market participants seem to have fully assessed the recent strong prints from the US jobs report as well as remarks by Chair Powell on Tuesday.

The daily bounce in spot also finds support in the equally decent move higher in the German 10-year Bund yields, which approach the 2.40% level amidst the fourth consecutive daily uptick.

Nothing worth mentioning in the euro docket other than the 0.2% monthly contraction of Retail Sales in Italy during December. On a yearly basis, sales expanded 3.4%.

In the US calendar, MBA Mortgage Applications and Wholesale Inventories wil come later. In addition, NY Fed J.Williams (permanent voter, centrist), FOMC M.Barr (permanent voter, centrist) and FOMC C.Waller (permanent voter, hawk) are also due to speak.

What to look for around EUR

EUR/USD seems to have embarked on a decent recovery soon after bottoming out in the 1.0670 region on Tuesday, always in response to the loss of upside traction around the dollar.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics, as well as the potential next moves from the ECB after the central bank delivered a 50 bps at its meeting last week.

Back to the euro area, recession concerns now appear to have dwindled, which at the same time remain an important driver sustaining the ongoing recovery in the single currency as well as the hawkish narrative from the ECB.

Key events in the euro area this week: Germany Flash Inflation Rate (Thursday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. Impact of the Russia-Ukraine war on the growth prospects and inflation outlook in the region. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.28% at 1.0753 and is expected to meet the next up barrier at 1.1032 (2023 high February 2) followed by 1.1100 (round level) and finally 1.1184 (weekly high March 31 2022). On the flip side, a drop below 1.0697 (monthly low February 7) would target 1.0669 (55-day SMA) en route to 1.0481 (2023 low January 6).