EUR/USD adds to recent gains and revisits 1.1180

• EUR/USD extends the rebound to the 1.1180 area.
• The greenback starts the week in an offered fashion.
• EMU Q4 GDP, German CPI next on tap in the calendar.

The single currency extends the optimism seen at the end of last week and advances for the second session in a row vs. the greenback, managing at the same time to motivate EUR/USD to retest the 1.1180 region at the beginning of the week.

EUR/USD up on risk appetite, dollar losses

The renewed upside mood in the pair appears so far underpinned by the rebound in yields of the German 10y Bund, which in turn motivates another drop in the yield spread differential vs. its US counterpart.

Extra upside in spot comes amidst some profit taking in the buck in light of recent strong gains – including new cycle highs in the US Dollar Index – and the improved sentiment in the risk complex after the Chinese Manufacturing PMI surprised to the upside, albeit marginally, in January.

In the docket, advanced Q4 GDP figures are due for the broader Euroland seconded by Germany flash inflation figures for the month of January. Across the pond, minor data releases include the Chicago PMI seconded by the Dallas Fed Manufacturing Index.

What to look for around EUR

EUR/USD sold off to levels last traded in June 2020 near 1.1120 during a week marked by the solid performance of the greenback, which was in turn exacerbated after the hawkish message from the FOMC event (January 26). Moving forward, the outlook for the pair remains far from rosy, particularly in light of the Fed’s imminent start of the tightening cycle vs. the accommodative-for-longer stance in the ECB, despite the high inflation in the euro area is not giving any things of cooling down for the time being. On another front, the unabated advance of the coronavirus pandemic remains as the exclusive factor to look at when it comes to economic growth prospects and investors’ morale in the region.

Key events in the euro area this week: EMU Advanced Q4 GDP, Germany Preliminary January CPI (Monday) – Germany Retail Sales/Unemployment Rate/Unemployment Change/Final January Manufacturing PMI, EMU Unemployment Rate/Final January Manufacturing PMI (Tuesday) – EMU Flash January CPI (Wednesday) – EMU, Germany Final January Services PMI, ECB Meeting (Thursday) – EMU Retail Sales (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. ECB stance/potential reaction to the persistent elevated inflation in the region. ECB tapering speculation/rate path. Italy elects President of the Republic in late January. Presidential elections in France in April. Geopolitical concerns from the Russia-Ukraine conflict.

EUR/USD levels to watch

So far, spot is gaining 0.18% at 1.1167 and faces the next up barrier at 1.1304 (55-day SMA) seconded by 1.1369 (high Jan.20) and finally 1.1443 (100-day SMA). On the other hand, a break below 1.1121 (2022 low Jan.28) would target 1.1100 (round level) en route to 1.1000 (psychological level).