EUR/USD HOLDS ON AROUND 1.0500 AHEAD OF GERMAN CPI, SINTRA

• EUR/USD briefly dipped below 1.0500 on USD strength.
• German Flash June CPI next on tap in the domestic docket.
• Lagarde, Bailey, Powell will meet in Sintra later in the session.

The single currency remains under pressure and prompts EUR/USD to navigate the 1.0500 neighbourhood on Wednesday.

EUR/USD LOOKS TO DATA, ECB FORUM

EUR/USD so far loses ground for the second session in a row on Wednesday on the back of the resumption of the risk aversion and the better sentiment surrounding the greenback.

In the meantime, the German money markets show the 10y Bund yields trimming part of the recent 2-day advance and retest the 1.60% region amidst the equally flat performance in the US peers.

In the domestic calendar, advanced inflation figures in Spain showed the CPI is seen rising 10.0% in the year to June. Further June data saw the final EMU Consumer Confidence at -23.6 and the Economic Sentiment at 104. Later in the session, markets’ attention will be on the release of the German preliminary inflation data ahead of the discussion panel between Powell, Bailey and Lagarde at the ECB Forum in Sintra.

What to look for around EUR

EUR/USD faces the re-emergence of the risk-off mood and the subsequent drop to the sub-1.0500 area midweek.

In the meantime, the single currency continues to closely follow news from the ECB Forum in Portugal as well as any developments surrounding the bank’s plans to design a de-fragmentation tool in light of the upcoming start of the hiking cycle.

However, EUR/USD is still far away from exiting the woods and it is expected to remain at the mercy of dollar dynamics, geopolitical concerns and the Fed-ECB divergence, while higher German yields, persistent elevated inflation in the euro area and a decent pace of the economic recovery in the region are also supportive of an improvement in the mood around the euro.

Key events in the euro area this week: ECB Forum on Central Banking, EMU Final Consumer Confidence, EMU Economic Sentiment, Germany Flash Inflation Rate, ECB Lagarde (Wednesday) – Germany Retail Sales, Unemployment Change, Unemployment Rate. EMU Unemployment Rate, ECB Lagarde (Thursday) – EMU, Germany Final Manufacturing PMI, EMU Flash Inflation Rate (Friday).

Eminent issues on the back boiler: Fragmentation risks. Kickstart of the ECB hiking cycle in July? Asymmetric economic recovery post-pandemic in the euro bloc. Impact of the war in Ukraine on the region’s growth prospects.

EUR/USD levels to watch

So far, spot is retreating 0.05% at 1.0511 and faces immediate contention at 1.0358 (monthly low June 15) followed by 1.0348 (2022 low May 13) and finally 1.0300 (psychological level). On the upside, a break above 1.0615 (weekly high June 27) would target 1.0773 (monthly high June 9) en route to 1.0786 (monthly high May 30).