EUR/USD regains upside traction and re-targets 1.1000, focus on Ukraine

• EUR/USD bounces off 1.0900 and now looks to 1.1000.
• The greenback starts the week on an offered bias despite higher yields.
• Another round of Russia-Ukraine peace talks will take centre stage.

The European currency starts the week on an upbeat mood and lifts EUR/USD to the vicinity of the key barrier at 1.1000 on Monday.

EUR/USD looks supported near 1.0900

EUR/USD posts important gains and reverses two consecutive daily retracements on Monday on the back of the renewed selling bias in the greenback, which in turn forces the US Dollar Index (DXY) to return to the sub-99.00 zone.

The optimism in the geopolitical landscape comes in tandem with fresh hopes of a diplomatic end to the war in Ukraine in light of another round of talks between Russian and Ukrainian officials later on Monday.

Also bolstering the bid bias in the single currency, German 10y Bund yields climb to fresh tops past 0.35%, an area las visited back in November 2018. Higher yields are also seen in the US money markets, where the 2y note surpasses the 1.80% level and the 10y benchmark note approaches the 2.10% mark.

Minor releases in the domestic data space saw German Wholesale Prices rising 1.7% MoM in February and 16.6% from a year earlier. Further data saw France’s trade deficit narrow to €8.03B in January.

The absence of data releases in the US calendar on Monday leaves the attention to Tuesday’s Producer Prices, the NY Empire State Index and TIC Flows.

What to look for around EUR

The European currency remains well under pressure amidst the persistent and underlying “flight-to-safety” context in response to the relentless progress of the war in Ukraine. The prospects for extra decline remain well in place and another challenge to the so far 2022 low near 1.0800 (March 7) should not be ruled out for the time being. Pockets of strength in the euro should appear propped up by bouts of appetite in the risk complex as well speculation of the start of the hiking cycle by the ECB at some point by year end. In addition, higher German yields, elevated inflation, the decent pace of the economic recovery and auspicious results from key fundamentals in the region should also collaborate with the occasional recovery in the euro.

Key events in the euro area this week: Eurogroup Meeting (Monday) – EcoFin Meeting, Germany/EMU ZEW Survey (Tuesday) – ECB Lagarde, EMU Final CPI (Thursday) – EMU Balance of Trade (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. Presidential elections in France in April. Impact of the geopolitical conflict in Ukraine.

EUR/USD levels to watch

So far, spot is gaining 0.53% at 1.0968 and faces the next up barrier at 1.1121 (weekly high Mar.10) followed by 1.1146 (20-day SMA) and finally 1.1268 (55-day SMA). On the other hand, a drop below 1.0805 (2022 low Mar.7) would target 1.0766 (monthly low May 7 2020) en route to 1.0727 (monthly low Apr. 24 2020).