FX

EUR/USD: Bulls challenge the 1.0260 area once again

  • EUR/USD extends the recovery to the 1. 0260 region.
  • German final Manufacturing PMI came at 49.3 in July.
  • Markets’ attention will be on the US ISM Manufacturing due later.

The buying interest around the European currency remains well and sound and motivates EUR/USD to attempt another test of the 1.0260/70 band on Monday.

EUR/USD up on risk appetite, USD-selling

EUR/USD trades with gains for the fourth consecutive session at the beginning of the week, although it faces a major resistance around the 1.0260/70 band so far.

Another weak performance in the greenback lends further wings to the ongoing recovery in the pair after bottoming out in the 1.0100 neighbourhood during last week.

The bid tone in spot comes pari passu with the continuation of the upbeat mood in the broader risk-linked galaxy, while gains in yields on both sides of the ocean also underpin the upside momentum so far.

In Germany, Retail Sales contracted 8.8% YoY in June, while final figures saw the Manufacturing PMI at 49.3 in July. In the euro area, the Manufacturing PMI also remained in the contraction territory at 49.8, while the Unemployment Rate stayed put at 6.6% in June.

In the NA session, the manufacturing sector will also take centre stage with the releases of the final S&P Global Manufacturing PMI and the more relevant ISM Manufacturing, all followed by Construction Spending results during June.

What to look for around EUR

EUR/USD maintains its consolidative phase with gains clearly limited around 1.0260 so far.

Price action around the European currency, in the meantime, is expected to closely follow dollar dynamics, geopolitical concerns, fragmentation worries and the Fed-ECB divergence.

On the negatives for the single currency emerges the so far increasing speculation of a potential recession in the region, which looks propped up by dwindling sentiment readings among investors and the renewed downtrend in some fundamentals

Key events in the euro area this week: Germany Retail Sales, Final Manufacturing PMI, EMU Final Manufacturing PMI, Unemployment Rate (Monday) – Germany Balance of Trade, Final Services PMI (Wednesday) – Germany Construction PMI (Thursday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle. Italian elections in late September. Fragmentation risks amidst the ECB’s normalization of monetary conditions. Impact of the war in Ukraine on the region’s growth prospects and inflation.

EUR/USD levels to watch

So far, spot is gaining 0.34% at 1.0260 and a breakout of 1.0278 (weekly high July 21) would target 1.0429 (55-day SMA) en route to 1.0615 (weekly high June 27). On the other hand, initial contention emerges at 1.0107 (weekly low July 26) seconded by 1.0000 (psychological level) and finally 0.9952 (2022 low July 14).

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