- EUR/USD corrects lower following another attempt to 1.2000.
- ECB’s Lagarde said higher yields is ahead of the economic recovery.
- US Initial Claims, Philly Fed gauge and CB Leading Index come up next.
The single currency resumes the downside and drags EUR/USD once again to the mid-1.1900s in the second half of the week.
EUR/USD remains capped around 1.2000
EUR/USD returns to the negative territory after another failed attempt to re-test the psychological 1.2000 neighbourhood following the FOMC event on Wednesday.
The pair regained traction and move to the proximity of the 1.20 barrier on Wednesday following the dovish message from the FOMC event, where Chief Powell once again re-affirmed the ultra-accommodative stance from the Fed and suggested that rates are seen at current levels until end of 2023.
Closer to home and earlier in the session, ECB’s President Christine Lagarde noted that rising yields are getting ahead of the economic recovery instead to be following (temporary) bouts of inflation. In addition, Lagarde expects a solid rebound in the second half of the year on the back of the vaccine rollout and easing restrictions.
Later in the European session, ECB’ Vice-President Luis De Guindos and Board member Isabel Schnabel are due to speal in an otherwise empty docket. Across the Atlantic, the usual weekly Claims are expected seconded by the Philly Fed Index and the CB Leading Index.
What to look for around EUR
EUR/USD once again met a tough resistance in the proximity of the psychological 1.20 hurdle. The persistent solid stance in the greenback in recent weeks has put the previous constructive view in the euro under scrutiny, as market participants continue to adjust to higher US yields and the outperformance of the US economy narrative. However, the steady hand from the ECB (despite some verbal concerns) in combination with the expected rebound of the economic activity in the region in the post-pandemic stage is likely to prevent a much deeper pullback in the pair.
Eminent issues on the back boiler: Potential ECB action to curb rising European yields. EUR appreciation could trigger ECB verbal intervention, especially amidst the future context of subdued inflation. Potential political effervescence around the EU Recovery Fund. Still huge long positioning in the speculative community.
EUR/USD levels to watch
At the moment, the index is retreating 0.28% at 1.1944 and faces the next support at 1.1882 (weekly low Mar.16) seconded by 1.1840 (200-day SMA) and finally 1.1835 (2021 low Mar.9). On the flip side, a breakout of 1.1989 (weekly high Mar.11) would target 1.2070 (50-say SMA) en route to 1.2113 (monthly high Mar.3).
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