EUR/USD regains the smile and retests 1.0880

• EUR/USD partially reverses last week’s sharp pullback.
• EMU Industrial Production comes next in the calendar.
• NY Empire State index, Fedspeak next of note across the pond.

The single currency regains some balance and motivates EUR/USD to rebound from recent multi-week lows near 1.0850.

EUR/USD up on weaker dollar

EUR/USD regains some upside traction and sets aside part of last week’s deep sell-off to the mid-1.0800s, an area last seen back in mid-April, on the back of some corrective decline in the greenback.

Indeed, traders appear to be cashing out part of the recent dollar’s gains on Monday, while the appetite for the risk complex seems to lend much needed oxygen to the pair at the beginning of the week.

Monday’s uptick in spot, in the meantime remains underpinned by the continuation of the recovery in the German 10-year Bund yields, which add to Friday’s gains near the 2.30% area.

In the docket, the European Commission (EC) released its updated forecasts and now sees the unemployment steady at 6.8% this year and retreating to 6.7% in 2024. The EC also revised up its projections for inflation and economic growth and expects consumer prices to rise 5.8% in 2023 and 2.8% during the next year and the economy to expand 1.1% in 2023 and 1.6% in 2024.

In the calendar, Industrial Production in the broader euro area is due later while the NY Empire State Manufacturing Index and TIC Flows are due across the pond along with speeches by Fed’s Bostic, Kashkari, Barkin and Cook.

What to look for around EUR

EUR/USD attempts a mild rebound following the reversal to 5-week lows in the 1.0850 region recorded on Friday.

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: Eurogroup Meeting, EMU Industrial Production (Monday) – 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 0.25% at 1.0875 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 1.0799 (100-day SMA).