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  • A combination of supporting factors assisted EUR/USD to gain strong traction on Tuesday.
  • The upbeat market mood prompted some USD profit-taking ahead of Yellen’s testimony.
  • Upbeat ZEW economic survey results provided an additional boost to the shared currency.

The EUR/USD pair extended its steady intraday upward movement and refreshed daily tops, around the 1.2135-40 region during the mid-European session.

The pair built on the previous session’s bounce from seven-week lows, around mid-1.2000s and gained some strong positive traction through the first half of the trading action on Tuesday. The momentum was sponsored by the emergence of some fresh US dollar selling and got an additional boost from better-than-expected German ZEW Economic Sentiment Index.

The prevalent upbeat market mood – as depicted by a positive trading sentiment around the equity markets – was seen as one of the key factors undermining the safe-haven greenback. The global risk sentiment remained well supported by the optimism over the rollout of COVID-19 vaccines and hopes for more aggressive US fiscal spending under Joe Biden’s presidency.

The USD pullback could further be attributed to some profit-taking ahead US Treasury Secretary nominee Janet Yellen’s confirmation hearing before the Senate Finance Committee later this Tuesday. Reports indicated that Yellen will urge lawmakers to act big to a protracted downturn and also outline the need for the proposed $1.9 trillion COVID-19 relief package.

The buying interest around the shared currency picked up pace following the release of upbeat ZEW survey results. In fact, the German ZEW Economic Sentiment Index jumped to 61.8 in January as compared to 60.0 expected and 55.0 previous. Adding to this, the gauge for the broader Eurozone unexpectedly improved to 58.3 during the reported month as against 45.5 anticipated.

Meanwhile, the underlying bullish sentiment in the financial markets, along with expectations of a larger government borrowing pushed the US Treasury bond yields higher across the board. This might help limit further losses for the greenback. Bulls might also refrain from placing aggressive bets ahead of the ECB monetary policy decision on Thursday.

Hence, it will now be interesting to see if the EUR/USD pair is able to capitalize on the move or meets with some supply at higher levels. In the absence of any major market-moving economic releases from the US, the broader market risk sentiment might continue to influence the USD price dynamics and produce some short-term trading opportunities around the EUR/USD pair.

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