EUR/USD Sinks To 6-Week Lows Near 1.0630, Dollar Remains Strong

The bearish sentiment remains well and sound around the European currency and motivates EUR/USD to slip back to the 1.0630 regions for the first time since early January. EUR/USD loses ground for the third session in a row at the end of the week amidst the unabated recovery in the greenback, which motivates the USD Index (DXY) to extend the recent breakout of the 104.00 barriers.

The pair saw its losses accelerate in past hours in response to the ongoing hawkish narrative from Fed speakers – this time Mester and Bullard – while the firmer-than-expected results from the US docket also added to the renewed strength in the buck.

Data-wise, in the Euroland, Producer Prices in Germany contracted at a monthly 1.0% in January and rose 17.8% over the last twelve months. In addition, France’s final figures saw the CPI rise 0.4% MoM in January and 6.0% vs. the same month of 2022. Later in the session, EMU’s Current Account results are also due.

In the US, the CB Leading Index will be the sole release seconded by the speech by Richmond Fed T. Barkin. EUR/USD appears well on the offered side and probes the area of multi-week lows near 1.0630 at the end of the week.

In the meantime, price action around the European currency should continue to closely follow dollar dynamics and the potential next moves from the ECB after the bank has already anticipated another 50 bps rate raise at the March event.

Recession concerns now appear to have dwindled back to the euro area, which at the same time remains an important driver sustaining the ongoing recovery in the single currency and the hawkish narrative from the ECB.

Eminent issues on the back boiler: Continuation of the ECB hiking cycle amidst dwindling bets for a recession in the region and still elevated inflation. Impact of the Russia-Ukraine war on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

So far, the pair is retreating 0.29% at 1.0640, and a drop below 1.0629 (monthly low February 17) would target 1.0481 (2023 quiet January 6) en route to 1.0326 (200-day SMA). On the other hand, the next-up barrier emerges at 1.0804 (weekly high February 14), seconded by 1.1032 (2023 high February 2) and finally 1.1100 (ground level).

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