• EUR/USD extends the optimism and flirts with 1.0700.
• The weaker dollar sustains the better tone in the risk complex.
• EMU Unemployment Rate, Sentix index next of note in the docket.

The European currency keeps the bid tone unchanged and lifts EUR/USD to the boundaries of 1.0700 the figure at the beginning of the week.

EUR/USD looks at data, risk appetite

EUR/USD advances for the second session in a row on Monday and prints new multi-day highs in the 1.0700 neighbourhood amidst the persistent selling bias around the US dollar.

Indeed, the greenback loses further ground and revisits the 103.50 zone as market participants continue to assess Friday’s publication of the US labour market report for the month of December.

Data wise in the bloc, the Unemployment Rate is due later along with the Sentix Index, which tracks the Investor Confidence in the region.

Across the pond, the Consumer Credit Change will be the sole release as well as 3-month/6-month bill auctions.

What to look for around EUR

EUR/USD has embarked on a strong recovery and has already gained nearly 2 cents since lows near 1.0500 recorded in the first trading week of the new year.

In the meantime, the European currency is expected to closely follow dollar dynamics, the impact of the energy crisis on the region and the Fed-ECB divergence.

Back to the euro area, the increasing speculation of a potential recession in the bloc emerges as an important domestic headwind facing the euro in the short-term horizon.

Key events in the euro area this week: Germany Industrial Production, Italy Unemployment Rate, EMU Unemployment Rate/Sentix Index (Monday) – France Industrial Production (Tuesday) – France final Inflation Rate, Germany Full Year GDP Growth, MEU Balance of Trade/Industrial Production (Friday).

Eminent issues on the back boiler: Continuation of the ECB hiking cycle vs. increasing recession risks. Impact of the war in Ukraine and the protracted energy crisis on the region’s growth prospects and inflation outlook. Risks of inflation becoming entrenched.

EUR/USD levels to watch

So far, the pair is gaining 0.38% at 1.0679 and faces the next resistance level at 1.0713 (weekly high December 30) ahead of 1.0736 (monthly high December 15) and finally 1.0773 (monthly high June 27). On the downside, the breach of 1.0496 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0383 (55-day SMA).