- EUR/USD drops further and clinches fresh 2022 lows.
- Geopolitics continues to 'prop up' risk aversion.
- German Retail Sales expanded 10.3% YoY in January.
There is no respite for the single currency at the beginning of the week, as another bout of weakness sent EUR/USD to new cycle lows in the vicinity of 1.0820.
EUR/USD weak on geopolitical concerns
EUR/USD accelerated the downtrend to the 1.0825/20 band earlier in the session, where it has encountered some initial contention so far.
As usual in past days, persistent concerns over the geopolitical scenario in Ukraine continue to dictate the mood in global markets, with a clear preference for the safe haven universe, and among them, the dollar.
Activity in the German money market sees 10y Bund yields navigating the lower end of the monthly range around -0.06%, weighed down by the Russia-Ukraine conflict.
On the euro's docket, German Retail Sales expanded 10.3% on a year to January and Factory Orders rose 1.8% from a month earlier. In the broader Euroland, Investor Confidence tracked by the Sentix Index worsened to -7.0 for the current month.
What to look for around EUR
EUR/USD collapsed to levels last seen in May 2020 near the 1.0800 yardstick on Monday. The European currency is expected to remain under heavy pressure for as long as the Russia-Ukraine conflict lasts along with the persistent risk aversion, altogether bolstering the “flight-to-safety” environment. In the longer run, occasional strength in the pair should remain underpinned by speculation of a potential interest rate hike by the ECB – probably sooner than many anticipate – as well as higher German yields, persevering elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region.
Key events in the euro area this week: Germany Retail Sales, EMU Sentix Index (Monday) – EMU Flash Q4 GDP (Tuesday) – ECB interest rate decision (Thursday) – Germany Final CPI.
Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. Speculation of ECB tightening/tapering later in the year. Presidential elections in France in April. Geopolitical concerns from the Russia-Ukraine conflict.
EUR/USD levels to watch
So far, spot is losing 0.68% at 1.0855 and faces the next up barrier at 1.1139 (10-day SMA) followed by 1.1300 (55-day SMA) and finally 1.1395 (weekly high Feb.16). On the other hand, a drop below 1.0821 (2022 low Mar 7) would target 1.0766 (monthly low May 7 2020) en route to 1.0727 (monthly low Apr 24 2020).