*Original article by Tomasz Wiśniewski | Sourced from FXDailyReport*
Title: EUR/USD Retreats From Session Highs, Settles Near 1.1607 as Focus Shifts to Economic Data and Fed Outlook
The EUR/USD currency pair experienced a moderate pullback during its trading session after initially climbing to intraday highs. The pair retreated toward the 1.1607 level following early gains powered by investor optimism around easing energy prices and ongoing assessments of the U.S. Federal Reserve’s monetary policy stance. Despite the downturn from session highs, support for the euro remains buoyed by investor hopes that the European Central Bank (ECB) may shift its tone in upcoming meetings.
The euro’s move reflected broader currencies market themes, including the U.S. dollar’s performance amid rising Treasury yields and evolving expectations on inflation and potential rate hikes. The shifting macroeconomic environment continues to steer the forex markets, making this week’s economic data releases critical in defining near-term trends.
Below is an expanded analysis covering the drivers behind the EUR/USD decline, as well as broader implications for forex traders moving forward.
EUR/USD Intraday Price Movement
The EUR/USD pair opened the session with a positive tone and moved higher during early European hours. However, as trading progressed, the currency pair started to lose momentum and retreated from its daily peak to hover around the 1.1607 level.
– The pair had previously rebounded from strong support levels after consolidating during earlier sessions.
– EUR/USD approached 1.1625 before facing selling pressure amid a strengthening U.S. dollar.
– Resistance around this range appears to remain unbroken, suggesting that further upside may require stronger euro-specific catalysts or broader dollar weakness.
Despite this retracement, the overall trading range for EUR/USD has stayed relatively contained, reflecting market hesitance ahead of key U.S. inflation data and Friday’s scheduled speeches by Federal Reserve officials.
Factors Impacting the Euro
The euro’s modest decline is influenced by several factors that are impacting short- and medium-term sentiment across global markets.
1. Energy Market Stabilization:
– The sharp increase in energy prices over previous weeks had put pressure on the euro due to growing concerns over economic pressure in the eurozone, particularly among energy-import dependent nations.
– Recent stabilization in oil and gas markets has eased some of these concerns, giving the euro room to recover.
– However, the euro remains vulnerable should energy prices experience another bout of volatility, or if further supply chain disruptions affect manufacturing-intensive economies in Europe.
2. ECB Monetary Policy Outlook:
– Although the European Central Bank has maintained its accommodative stance, recent commentary from some ECB members has introduced the possibility of faster tapering or more aggressive policy normalization, depending on inflation trends.
– Markets continue to price in a gradual shift in ECB tone but expect the bank to remain behind the curve compared to the U.S. Federal Reserve.
– The ECB has yet to provide any concrete timetable for tapering its pandemic-era asset purchases, which keeps the euro slightly constrained in terms of long-term appreciation potential.
U.S. Dollar Strength and Yield Impact
The U.S. dollar index has remained firm, supported by rising Treasury yields and expectations that the Federal Reserve will respond to inflationary pressures with rate hikes quicker than previously anticipated.
– Benchmark 10-year U.S. Treasury yields have climbed above 1.6 percent, providing the greenback with a boost.
– Market participants are increasingly pricing in the possibility of a Fed interest rate hike by mid-2022.
– Hawkish comments from key Federal Reserve officials are being monitored closely as part of this evolving outlook.
As a result, the dollar’s strength has served as a counterbalance to any euro appreciation, maintaining downside pressure on the EUR/USD pair.
Upcoming Economic Data and Events
The remainder of the trading week is packed with macroeconomic reports that could shape short-term movements in EUR/USD.
Key data to watch includes:
– U.S
Read more on EUR/USD trading.