EUR/USD comes under pressure near 1.1100 ahead of ECB, US CPI
- EUR/USD gives away some gains and recedes to 1.1050.
- The ECB will release its updated Macroeconomic Projections.
- US CPI will be the salient publication later in the NA session.
Following the acute upside on Wednesday, EUR/USD now slips back to the mid-1.1000s ahead of the ECB event and key US data.
EUR/USD appears capped by 1.1100
Wednesday’s sharp U-turn in the appetite for riskier assets saw EUR/USD advance to weekly highs in the 1.1100 neighbourhood amidst rising hopes of a probable diplomatic solution to the military conflict in Ukraine.
On Thursday, however, the risk complex appears to have lost some shine as talks between Russia’s Lavrov and Ukraine’s Kuleba are underway in Turkey.
The downtick in the spot came hand in hand with the retracement in yields of the German 10y Bund to the 0.17% area after climbing as high as the 0.21% zone in the previous session. Same performance is seen from US yields across the curve, trading a tad lower following Wednesday’s rebound.
In the docket, the ECB gathering will be the salient event, where a potential re-adjustment of the bank’s policy is expected to be in the centre of the debate along with the publication of the updated forecasts for growth and inflation.
Across the Atlantic, February inflation figures tracked by the CPI will take centre stage later in the NA docket.
What to look for around EUR
EUR/USD managed well to regain upside momentum and reclaim the area near the 1.110 barrier on Wednesday, although running out of some steam afterwards. Price action around the European currency, in the meantime, is expected to remain dictated by the geopolitical landscape for the time being. Looking at the longer term, bouts of strength in the pair should remain underpinned by speculation of a potential interest rate hike by the ECB probably sooner than many anticipate, higher German yields, persevering elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region.
Key events in the euro area this week: ECB interest rate decision (Thursday) – Germany Final CPI.
Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Geopolitical concerns from the Russia-Ukraine conflict.
EUR/USD levels to watch
So far, spot is retreating 0.31% at 1.1042 and faces the next up barrier at 1.1095 (weekly high Mar.9) followed by 1.1188 (20-day SMA) and finally 1.1283 (55-day SMA). On the other hand, a drop below 1.0805 (2022 low Mar.7) would target 1.0766 (monthly low May 7 2020) en route to 1.0727 (monthly low Apr. 24 2020).