EUR/USD recedes from recent tops, back near 1.1330

EUR/USD drifts lower amidst renewed dollar strength.
German 10y Bund yields flirt with recent tops around -0.16%.
Final Manufacturing PMI in Germany and the euro area comes next.
Selling pressure returns to the single currency and is draging EUR/USD back to the 1.1330 region after climbing past the 1.1380 level, or new December high, at the end of last week.

EUR/USD remains capped near 1.1380
EUR/USD has come under pressure at the beginning of the new year steered by positive sentiment for the greenback. A mild bounce in US yields accompanied the the buck’s comeback as well as a selling bias for risk-associated assets. Higher yields are seen in the German money markets, where yields of the 10y Bund reference navigate the area of multi-week tops around -0.16%.
Later in the domestic calendar, the final Manufacturing PMIs for the month of December in the euro area, Germany and the US will take centre stage along with the November’s US Construction Spending.

What to look for around EUR
EUR/USD managed to break above the monthly consolidative phase and is now gradually approaching the key barrier at the 1.1400 figure. As normal activity in global markets resumes, following the festive period, the pair is seen refocusing on a main driver, namely the ECB-Fed policy divergence. In the meantime, the unabated progress of the coronavirus pandemic as well as the fast-spreading Omicron variant remain as the exclusive factors to look at when it comes to economic growth prospects and investors’ morale.

Key events in the euro area this week: EMU/Germany Final Manufacturing PMIs (Monday) – German Retail Sales, labour market report (Tuesday) – EMU/Germany Final Services PMIs (Wednesday) – Germany Advanced December Inflation Rate (Thursday) – EMU Advanced December Inflation Rate (Friday).

Eminent issues on the back boiler: Asymmetric economic recovery post-pandemic in the euro area. ECB stance/potential reaction to the persistent elevated inflation in the region. ECB tapering speculation/rate path.

EUR/USD levels to watch
So far, spot is losing 0.40% at 1.1338 and faces the next up barrier at 1.1386 (monthly high November 30) followed by 1.1464 (weekly high Nov.15) and finally 1.1520 (200-week SMA). On the other hand, a break below 1.1273 (weekly low Dec.29) would target 1.1221 (weekly low Dec.15) en route to 1.1186 (2021 low Nov.24).