EUR/USD regains the smile and bounces off 2-month lows

• EUR/USD picks up some upside traction and revisits 1.0560.
• The dollar appears mildly offered ahead of Friday’s Payrolls.
• Weekly US Initial Claims will be the only release of note on Thursday.

The combination of some profit taking in the greenback and bargain hunters breath in some life to EUR/USD and lift it to the 1.0565/70 band on Thursday.

EUR/USD cautious ahead of US NFP

EUR/USD trades with decent gains near 1.0570 and leaves behind two consecutive daily pullbacks, including a drop to 2-month lows near 1.0520 on Wednesday.

The so far recovery in the pair comes amidst the moderate pullback in the dollar, which appears propped up at the same time by some lack of traction in US yields, all against the backdrop of rising cautiousness among traders ahead of the release of US Non-farm Payrolls on Friday.

In the meantime, firmer conviction of a 50 bps rate hike by the Fed at its March gathering continue to support the recent solid bounce in the greenback, while speculation that the ECB could extend its hiking cycle beyond the March meeting has so far failed to lent lasting legs to the European currency.

Nothing scheduled data wise in the old continent should leave all the attention to the usual weekly Initial Claims across the pond.

What to look for around EUR

EUR/USD gives some signs of life following the recent drop to multi-week lows in the 1.0525/20 band in the wake of the hawkish intervention by Fed’s Powell before the Congress (Tuesday and Wednesday).

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 bank has already anticipated another 50 bps rate raise at the March event.

Back to the euro area, the likely continuation of the normalization process by the ECB beyond the March meeting carries the potential to reignite recession concerns.

Key events in the euro area this week: Germany Final Inflation Rate, ECB Lagarde (Friday).

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 advancing 0.16% at 1.0558 and the breakout of 1.0712 (55-day SMA) would target 1.0804 (weekly high February 14) en route to 1.1032 (2023 high February 2). On the downside, the initial support comes at 1.0524 (monthly low March 8) seconded by 1.0481 (2023 low January 6) and finally 1.0324 (200-day SMA).