EUR/USD: Bulls could not hold the upside, back to 1.0600

EUR/USD faces decent resistance near 10640.

Germany Construction PMI retreated to 46.0 in April.

German 10Y bund yields flirt once again with 1.0%.

The upside momentum in EUR/USD seems to have run out of legs around multi-day highs near 1.0640 on Thursday.

EUR/USD meets resistance near 1.0640

After two consecutive daily advances, including fresh tops around 1.0640, EUR/USD now comes under some selling pressure and challenges once again the 1.0600 neighbourhood.

The corrective move in the pair comes pari passu with the recovery in the German 10y bund yields to the boundaries of the key 1.0% area along with the modest rebound in US yields along the curve.

In the euro docket, earlier results saw German Factory Orders contract at a monthly 4.7% in March, while the Construction PMI eased to 46.0 in April (from 50.9). Across the ocean, weekly Claims will be the only release of note.

What to look for around EUR

EUR/USD jumped to the 1.0640 region following the FOMC’s hangover, where it appears to have run into some resistance. The outlook for the pair still remains tilted towards the bearish side, always in response to dollar dynamics, geopolitical concerns and the Fed-ECB divergence. Occasional pockets of strength in the single currency, in the meantime, should appear reinforced by speculation the ECB could raise rates at some point around June/July, while higher German yields, elevated inflation 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: Germany Factory Orders, Construction PMI (Thursday) – Germany Industrial Production (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. Impact on the region’s economic growth prospects of the war in Ukraine.

EUR/USD levels to watch

So far, spot is down 0.24% at 1.0592 and a breach of 1.0470 (2022 low April 28) would target 1.0453 (low January 11 2017) en route to 1.0340 (2017 low January 3 2017). On the upside, the next hurdle emerges at 1.0641 (weekly high May 5) followed by 1.0936 (weekly high April 21) and finally 1.1000 (round level).

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