EUR/USD holds steady above mid-1.1800s, upside seems limited ahead of Powell’s speech

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  • EUR/USD edged higher during the Asian session on Thursday amid a subdued USD demand.
  • The prevalent risk-on mood was seen as a key factor that undermined the safe-haven USD.
  • An uptick in the US bond yields should help limit the USD losses and cap gains for the major.

The EUR/USD pair traded with a mild positive bias through the Asian session and was last seen hovering near the top end of its intraday range, around the 1.1870-75 region.

Following the previous day’s pullback of around 50 pips from over two-week tops, the pair managed to regain some positive traction on Thursday amid a softer tone surrounding the US dollar. The underlying bullish tone in the financial markets weighed on the safe-haven USD, which, in turn, extended some support to the EUR/USD pair.

The shared currency was further supported by Wednesday’s final Eurozone PMI prints, which showed that business activity bounced back to growth in March. This added to the optimism led by reports that Germany, France, Italy, and Spain will have sufficient supplies to vaccinate at least 57% of their populations by the end of June, earlier than projected.

The upside, however, seems capped amid the upbeat US economic outlook, which should help limit any meaningful USD losses. Investors remained hopeful about the prospects for a relatively faster US economic recovery from the pandemic, thanks to the impressive pace of coronavirus vaccinations and US President Joe Biden’s infrastructure spending plan.

Apart from this, a modest pickup in the US Treasury bond yields could further underpin the greenback and keep a lid on any strong gains for the EUR/USD pair. Investors seemed convinced that a stronger US economic recovery will force the Fed to raise interest rates sooner than anticipated, though the narrative was downplayed by the latest FOMC meeting minutes.

Policymakers remained cautious about the continuing risks stemming from the pandemic and committed to extending monetary policy support until the recovery was more secure, the minutes showed. Hence, the focus now shifts to Fed Chair Jerome Powell’s scheduled speech later during the US session, which will play a key role in influencing the near-term USD price dynamics.

In the meantime, Thursday’s release of German Factory Orders and the ECB Monetary Policy Meeting Accounts (minutes) will be looked upon for some impetus. The US economic docket features the usual release of Initial Weekly Jobless Claims, which along with the broader market risk sentiment and the USD bond yields might produce some short-term trading opportunities.

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