The euro’s resilience in January, after delivering the worst annual loss in six years, may be just the beginning of a broader recovery as various indicators signal a more supportive backdrop for the currency.

The euro climbed to as high as $1.1483 last week, a level not seen since November, and traded at $1.1339 on Thursday, and technical gauges point to a more positive outlook. The currency is also getting a boost from rate differentials this week, as German 10-year yields breach the zero threshold for the first time in more than two years.

This comes amid an intensifying stand-off between traders and the ECB over the timing of interest-rate hikes. 

Despite insistence by officials that a hike is very unlikely in 2022, money markets now see a 10-basis-point increase to the deposit rate to minus 0.4% as early as September and an exit from sub-zero territory by the end of next year.

Here’s a look at some positive signs emerging for the euro. 

The common currency has been in a pattern of so-called ‘higher highs, higher lows’ since mid-December as momentum indicators point to upside risks.  It briefly broke above a multi-month bearish trend channel last week and may do so again, with moving averages sending a bullish signal. 

The euro has been showing resilience even as the gap between US Treasury and German yields widened toward the most since March 2020. That comes as the dollar’s long-lasting relationship with rates broke down, with the greenback languishing near the lowest levels since November even as US yields kept hitting multi-year highs. 

There’s ample room for traders to ramp up bets on ECB rate hikes from about 18 basis points priced in for this year, relative to wagers of about 100 basis points of tightening from the Federal Reserve -- a process that would be supportive for further euro gains. Traders’ bets on policy tightening could get a boost from surging energy prices. 

While ECB officials have stuck to the view of transitory inflation and noted that price pressures could recede this year, the International Energy Agency has said that oil markets look tighter than previously thought.

Meanwhile, food prices already near all-time peaks could rise further due to the growing appeal of turning more agricultural commodities into biofuels. 

Europe’s gas balance will remain unusually tight this year as curtailed supply, record-high gas prices, unprecedented volatility and geopolitical tensions show few signs of abating.

Reporting: The Irish Examiner