EUR/USD keeps the bid bias below 1.0900 on US data, looks at Lagarde

• EUR/USD gives away initial gains and revisits 1.0860.
• EMU, Germany Economic Sentiment surprised to the downside.
• US Retail Sales increased less than expected last month.

EUR/USD rapidly abandons the area of daily highs around 1.0900 in response to the sudden bout of strength in the dollar following the release of US Retail Sales.

EUR/USD: Daily upside seems capped just above 1.0900

EUR/USD deflates to the 1.0860 region and rebounds afterwards following a quick uptick in the greenback, all in response to lower-than-expected results from the US docket.

Indeed, US Retail Sales expanded at a monthly 0.4% in April, coming in short of initial expectations.

Following the release of Retail Sales, US yields made a U-turn and now trade with marked gains across the curve, while the German 10-year Bund yields also leap to the 2.30% region, eroding initial losses.

Later in the NA session, Industrial Production comes next ahead of the NAHB index and Business Inventories. Additionally, Fed’s Mester, Bostic, Williams, Logan and Barr are also due to speak

Closer to home, another revision of the Q1 GDP Growth Rate saw the economy expand 0.1% QoQ and 1.3% YoY. In addition, the ZEW’s Economic Sentiment in Germany and the broader euro bloc unexpectedly dropped to -9.4 and -10.7 for the current month. Finally, ECB’s Tuominen and Lagarde will also speak later on Tuesday.

What to look for around EUR

EUR/USD extends the weekly rebound and adds to Monday’s promising price action, always with the immediate target at the 1.0900 barrier.

The movement of the euro's value is expected to closely mirror the behaviour of the US Dollar and will likely be impacted by any differences in approach between the Fed and the ECB with regards to their plans for adjusting interest rates.

Moving forward, hawkish ECB-speak continue to favour further rate hikes, although this view appears in contrast to some loss of momentum in economic fundamentals in the region.

Key events in the euro area this week: ECOFIN Meeting, EMU Flash Q1 GDP Growth Rate, ZEW Economic Sentiment, Germany ZEW Economic Sentiment (Tuesday) – EMU Final Inflation Rate (Wednesday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle in June and July (September?). 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 0.02% at 1.0877 and the surpass of 1.1095 (2023 high April 26) would target 1.1100 (round level) en route to 1.1184 (weekly high March 21 2022). Conversely, the next contention level emerges at 1.0844 (monthly low May 15) seconded by 1.0831 (monthly low April 10) and finally 1.0802 (100-day SMA).