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  • A combination of factors failed to provide any meaningful impetus to EUR/USD on Monday.
  • A softer risk tone, Powell’s upbeat comments extended some support to the greenback.
  • Panetta’s remarks over the weekend kept the euro bulls on the defensive and capped gains.

The EUR/USD pair lacked any firm directional bias and remained confined in a narrow trading band, just below the 1.1900 mark through the Asian session.

Asian equity markets kicked off the new week on the backfoot and extended some support to the safe-haven US dollar. This was seen as a key factor that capped the upside for the EUR/USD pair. The USD bulls further took cues from the Fed Chair Jerome Powell’s upbeat comments and seemed rather unaffected by a mildly softer tone surrounding the US Treasury bond yields.

In an interview with 60 minutes, Powell said that the US economy really seems to be at an inflexion point. This reinforced the market expectations for a relatively faster US economic recovery from the pandemic, thanks to the impressive pace of coronavirus vaccinations and US President Joe Binde’s over $2 trillion infrastructure spending plan.

Powell further added that the Fed does want inflation moderately’ above 2% for some time but does not want it to go materially above 2% and return to the bad, old inflation days. It is worth mentioning here that the optimistic outlook for the US economy has been fueling speculations about a possible acceleration in US inflation.

This, in turn, raised doubts that the Fed will retain ultra-low interest rates for a longer period. Hence, the focus now shifts to this week’s release of the US consumer inflation figures on Tuesday.

On the other hand, the shared currency was pressured by the ECB board member Fabio Panetta’s comments over the weekend. Panetta told Spanish newspaper, El Pais, that the ECB should accept no further delay in lifting inflation back to its target. The current outlook is unsatisfactory and persistent misses risk, damaging the economy.

This could perhaps be seen as a hint that there is more stimulus to come, which should be negative for the euro and prompt some fresh selling around the EUR/USD pair. That said, the lack of any strong follow-through selling warrants some caution for bearish traders and positioning for any meaningful depreciating move, at least for the time being.

There isn’t any major market-moving economic data due for release on Monday, either from the Eurozone or the US, leaving the EUR/USD pair at the mercy of the USD price dynamics. The broader market risk sentiment, along with the US bond yields will influence the USD and allow traders to grab some short-term opportunities around the major.

Technical levels to watch

 

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