EUR/USD in recovery mode, re-tests 1.1830 ahead of ECB

• EUR/USD climbs to daily highs around 1.1830 on Thursday.
• Investors’ focus will be on the ECB event, PEPP and inflation.
• Weekly Claims will be the sole release in the US calendar.

The single currency now gives some signs of life and helps EUR/USD to regain upside traction to the 1.1830 area, or daily highs.

EUR/USD focused on the ECB

EUR/USD finally posts some gains after three consecutive daily pullbacks, always in response to the renewed buying interest around the dollar, which was in turn propped up by Delta jitters and a moderate rebound in yields of the US 10-year reference.

The pair, in the meantime, is expected to closely follow the ECB monetary policy meeting and the usual press conference by Chairwoman Lagarde soon afterwards. While a move on rates is largely ruled out, the debate is predicted to mainly gyrate on a potential tapering of the PEPP as well as the bank’s views on inflation.

Of note, however, will be how large the division between hawks and doves remains, particularly after recent comments from Board members De Guindos, Lane, Holzmann, Knot and Vasle.

In the domestic docket, Germany’s trade surplus widened to €17.9B in July, with Exports expanding 0.5% MoM and Imports contracting 3.8% MoM.

What to look for around EUR

EUR/USD seems to have met dip buyers in the boundaries of the 1.1800 neighbourhood and manages to attempt a decent bounce so far on Thursday ahead of the key ECB gathering due later in the session. In spite of the recent hawkish tilt from some ECB-speakers, consensus seems to be shaping up around the likeliness that Lagarde could talk down tapering hopes, which could in turn encourage sellers to return to the European currency and thus put the pair under extra downside pressure.

Key events in the euro area this week: German Trade Balance, ECB meeting (Thursday) – Final German CPI, EuroGroup meeting (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery in the region. Sustainability of the pick-up in inflation figures. Progress of the Delta variant of the coronavirus and pace of the vaccination campaign. Probable political effervescence around the EU Recovery Fund. German elections in September could bring some political jitters to the scenario. Investors’ shift to European equities in the wake of the pandemic could lend extra oxygen to the single currency. ECB tapering speculations.

EUR/USD levels to watch

So far, spot is gaining 0.18% at 1.1833 and faces the next up barrier at 1.1909 (monthly high Sep.3) followed by 1.1943 (100-day SMA) and finally 1.2000 (psychological level). On the other hand, a break below 1.1802 (weekly low Sep.8) would target 1.1786 (20-day SMA) en route to 1.1663 (2021 low Aug.20).