• EUR/USD extends the advance above the 1.1600 mark.
  • The corrective downside in the dollar fuels the move higher in spot.
  • ECB-speak, US Initial Claims next of relevance in the docket.

The single currency extends the optimism seen in the first half of the week and now pushes EUR/USD back above 1.1600 the figure on Thursday.

EUR/USD in multi-day highs

Short covering helps the EUR/USD advance for the second session in a row and manages to reclaim the area above 1.1600 the figure on Thursday.  

In fact, lower yields in the US 10-year reference note weigh on the buck and drags the US Dollar Index (DXY) further south after hitting new 2021 highs past 94.50 earlier in the week.

No news from the publication of the FOMC Minutes on Wednesday also removed strength from the greenback after the Committee’s general view continues to support the idea that the Federal Reserve could start trimming its bond-purchase programme in November/December, falling in line with the current narrative among Fed-speakers.

No data releases on Thursday should leave the attention to speeches by ECB’s A.Enria and F.Elderson.

Across the pond, the usual weekly Claims are due along with Producer Prices. In addition, FOMC’s Bostic, Barkin and Williams are due to speak.

What to look for around EUR

EUR/USD woke up and regained the 1.1600 mark on the back of the corrective downside in the dollar following recent YTD highs. In the meantime, dollar dynamics are expected to keep dictating the price action around the pair for the time being. The firmer tone in the buck along with higher US yields and bouts of risk aversion – particularly in response to inflation jitters and the energy crunch – continue to undermine the performance of the risk universe, while the growth outlook appears under pressure on rising speculations that the inflation could take longer to reverse the ongoing elevated levels. In addition, the likely loss of momentum in the economic recovery, as per some weakness seen in key fundamentals, also caps the upside potential in the pair.

Key events in the euro area this week European Council Meeting (Thursday) – European Council Meeting, EMU Balance of Trade (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. 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 1.1611 and faces the next up barrier at 1.1631 (20-day SMA) followed by 1.1640 (weekly high Oct.4) and finally 1.1732 (55-day SMA). On the other hand, a break below 1.1524 (2021 low Oct.12) could target 1.1500 (round level) en route to 1.1495 (high Mar.9 2020).

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