• EUR/USD gives away part of the recent advance.
• The dollar’s price action looks inconclusive near 102.00.
• Germany’s Full Year GDP Growth surprised to the upside.

Investors appear to be cashing up part of the recent strong advance in EUR/USD and force the pair to recede to the 1.0830 region at the end of the week.

EUR/USD: Upside looks limited around 1.0870

Following an earlier move to fresh tops near 1.0870, EUR/USD comes under some modest selling pressure and gives away part of those gains against the backdrop of the vacillating price action in the dollar and alternating risk appetite trends on Friday.

Indeed, the greenback remains under scrutiny following weak US inflation figures for the month of December (released on Thursday), while some profit taking mood appears to be hitting the euro.

In the domestic calendar, France’s final headline CPI contracted 0.1% MoM in December and rose 5.9% over the last twelve months. In Germany, the Full Year GDP Growth expanded 1.9% in November, while Industrial Production in Italy contracted 0.3% MoM also in November and 3.7% from a year earlier.

Later in the session, Balance of Trade figures and Industrial Production in the broader Euroland will be in the limelight.

Across the pond, the advanced readings of the Michigan Consumer Sentiment for the month of January will be the salient event.

What to look for around EUR

EUR/USD extends the solid rebound to levels last seen in late April 2022 around 1.0870 at the end of the week.

Price action around the European currency should continue to closely follow dollar dynamics, as well as the impact of the energy crisis on the euro bloc 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: France final Inflation Rate, Germany Full Year GDP Growth, EMU 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 retreating 0.15% at 1.0835 and the breach of 1.0481 (monthly low January 6) would target 1.0443 (weekly low December 7) en route to 1.0442 (55-day SMA). On the upside, the next barrier comes at 1.0867 (monthly high January 13) followed by 1.0900 (round level) and finally 1.0936 (weekly high April 21 2022).