- EUR/USD drifts lower and challenges 1.1000.
- The dollar gathers extra steam and rises to fresh cycle tops.
- US Nonfarm Payrolls will be the salient event later in the session.
Selling pressure on the European currency remains intense for yet another session and drags EUR/USD to the boundaries of psychological support at 1.1000 on Friday.
EUR/USD weaker on safe haven demand, looks to data, Ukraine
Another day, another record low for EUR/USD. This time the pair probed the area around 1.1000 – a key support rubicon – against the backdrop of the rising demand for the greenback and the safe haven universe in general.
Worsening conditions in the Russia-Ukraine military conflict led investors to increase their holdings of safer assets. Their risk-averse behaviour intensified following failed attempts by officials of both countries to agree a ceasefire at Thursday’s talks.
A firm note in the German money markets, in the meantime, continues to sustain interest in bonds and drags yields of the 10y Bund back to the -0.020% region, along with the pullback seen in their US peers.
Back to the docket – Retail Sales in the broader Euroland expanded 0.2% MoM in January and 1.7% over the last twelve months, and Germany’s trade surplus widened to €9.4B in the first month of the year.
The NA session will be much more entertaining with the release of February’s Nonfarm Payrolls (400K exp.) and the Unemployment Rate (3.9% exp.).
What to look for around EUR
EUR/USD continues to look to geopolitics and risk appetite trends for direction. The recent deterioration on the Russia-Ukraine front is expected to keep the pair under pressure amidst solid risk-off sentiment and demand for the dollar. In the longer run, occasional bouts of 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, a decent pace of the economic activity and auspicious results from key fundamentals in the region.
Key events in the euro area this week: Germany Trade Balance, EMU Retail Sales (Friday).
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 0.48% at 1.1012 and faces the next up barrier at 1.1192 (10-day SMA) followed by 1.1309 (55-day SMA) and finally 1.1395 (weekly high Feb 16). On the other hand, a drop below 1.1001 (2022 low Mar 4) would target 1.1000 (round level) en route to 1.0870 (low May 25 2020).