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  • EUR/USD gained strong positive traction for the second straight day amid sustained USD selling.
  • Dovish Fed expectations, sliding US bond yields, risk-on mood weighed heavily on the greenback.
  • Sustained move beyond the 1.2235-40 region might have already set the stage for further gains.

The EUR/USD pair caught some fresh bids during the early European session and shot to the highest level since January, around the 1.2260-65 region in the last hour.

The pair added to the previous day’s positive move and gained strong follow-through traction for the second consecutive session on Tuesday amid the prevalent US dollar selling bias. Investors now seem aligned with the Fed’s view that inflation in the US is likely to be transitory and have been scaling back expectations about an inflation-driven rate hike. This was seen as a key factor that continued acting as a headwind for the greenback.

In fact, the key USD Index tumbled to fresh multi-month lows, around mid-89.00s and was further pressured by an extension of the recent downfall in the US Treasury bond yields. Apart from this, the underlying bullish sentiment in the financial markets further contributed to the heavily offered tone surrounding the safe-haven greenback.

Meanwhile, the latest leg of a sudden spike over the past hour or so could be attributed to some technical buying on a move beyond the 1.2235-40 resistance zone. This might have already set the stage for a further near-term appreciating move. Hence, a subsequent strength towards reclaiming the 1.2300 mark, en-route YTD tops around mid-1.2300s, looks a distinct possibility.

Technical levels to watch