EUR/USD sinks to 1.0550 as US Dollar rebounds post-jobs data

• EUR/USD drops to daily lows near 1.0550 on Thursday.
• The US Dollar gathers further traction on upbeat jobs results.
•  The US ADP report, weekly Claims surprised to the upside.

The selling pressure in the Greenback now picks up further pace and drags EUR/USD back to the mid-1.0500s on Thursday, or daily lows.

EUR/USD: Further downside could retest 1.0520

EUR/USD quickly returned to the negative territory in response to the abrupt uptick in the Greenback, which approaches the key 105.00 hurdle when measured by the USD Index (DXY).

Indeed, spot saw its losses accelerate after the US ADP report showed the US private sector added 235K jobs during December, surpassing initial estimates. In the same line, weekly Jobless Claims rose less than expected by 204K in the week to December 31, both prints highlighting the resilience and good health of the labour market.

The drop in the pair also falls in line with the uptick in US yields across the curve, while the German 10-year Bund yields also reverse part of the recent weakness.

Earlier in the euro docket, Germany’s trade surplus widened to €10.8B in November (from €6.9B) and the Construction PMI improved marginally to 41.7 in December. In the broader Euroland, Producer Prices contracted 0.9% MoM in November and rose 27.1% YoY. In Italy, flash inflation figures saw the CPI at 11.6% in the year to December.

What to look for around EUR

EUR/USD appears to lack conviction to surpass the recent resistance area near 1.0630 for the time being.

Moving forward, the European currency is expected to closely follow US 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 Balance of Trade, Germany S&P Global Construction PMI, Italy Flash Inflation Rate (Thursday) – Germany Retail Sales, EMU Flash Inflation Rate, EMU Retail Sales.

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 0.43% at 1.0557 and the breach of 1.0519 (weekly low January 3) would target 1.0443 (weekly low December 7) en route to 1.0314 (200-day SMA). On the other hand, there is an initial hurdle at 1.0713 (weekly high December 30) ahead of 1.0736 (monthly high December 15) and finally 1.0773 (monthly high June 27).