EUR/USD Outlook: Soft Yields Help Buyers Gain 1.13 in Indecision Market

• Since the end of November, EUR/USD has risen the most in just one week.
• During geopolitical negotiations, yields are important, but Omicron, Stimulus gives hope to the markets.
• A split over easy money appears to have occurred after mixed data, but the lack of Fedspeak reinforced bullish sentiment.
• Risk catalysts may amuse bulls for now as inflation in the US becomes a major factor.

Prior to Wednesday’s European session, the EUR/USD outlook rebounded near the daily high of 1.1293 and gained 0.20%. Despite the absence of key catalysts, the major currency pair was helped by the retreat of the US dollar.

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The US Dollar Index (DXY) is trading at 96.17, down 0.14% for the day on a 5-day upward trend. At the same time, the yield on 10-year US Treasuries declined to 1.463%, down from a weekly high by at most 1.7 basis points.

US Treasury bond yields are continuing to be weighed down by a lack of signals leading up to the Federal Reserve’s Open Markets Committee (FOMC) next week and Friday’s US Consumer Price Index (CPI), which is negatively impacting the US Treasury yields. In addition, market risk appetite is also pushing the pair lower, which alleviates the dollar’s need for safe havens.

As the threat of the South African variant of the Coronavirus called Omicron recedes, policymakers continue to protect the economies of China and Japan from encouraging them to take risks. As a result of geopolitical tensions between Washington and the Kremlin and disputes between the US and China, there is rising concern among investors and buyers about Chinese real estate defaults.

Bulls may also benefit from the indecision of policymakers at the European Central Bank (ECB) about their next steps. In light of high inflation and uncertain prospects, Governing Council member Madis Mueller said it was unclear whether the bank should increase its bond-buying program post-March. On the other hand, according to Reuters, governor of the Slovakian central bank and a member of the European Central Bank board, Peter Casimir, said, “We have to be careful not to tighten it prematurely.”

German policymakers and recent mixed data have cast doubt on ECB doves and the growth of the EUR/USD exchange rate. In addition, the absence of significant data or events suggests that the short-term direction of trade is determined by risk catalysts. Chinese and Russian headlines, as well as those from Omicron, are on the list.

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EUR/USD price technical outlook: More gains on cards

The EUR/USD price managed to rise above the 20-period SMA on the 4-hour chart. The pair is now around the 50-period SMA near 1.1300. However, this has been the rejection area for many weeks. The average daily range is 46%, which is higher than usual. Hence, we can expect high volatility on the day.

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