The EUR/USD pair faced challenges in capitalizing on the previous day’s significant upward movement of approximately 60 pips, trading with a slight negative bias during the Asian session on Friday. However, the pair remains comfortably above the 1.0800 mark, recovering from a nearly four-month low reached on Wednesday, supported by subdued action in the US Dollar (USD).
The US Dollar Index (DXY), which measures the Greenback against a basket of currencies, is consolidating following an overnight pullback from its highest level since July 30. This pullback comes amid a softer tone in US Treasury bond yields, while signs of stability in equity markets have also undermined the safe-haven appeal of the USD, helping to limit losses for the EUR/USD pair.
Nevertheless, increasing expectations that the Federal Reserve (Fed) will implement smaller rate cuts in light of a resilient economy, along with concerns about deficit spending following the US presidential election, are acting as a tailwind for US bond yields. Additionally, ongoing geopolitical risks associated with conflicts in the Middle East favor the USD bulls, which may constrain the EUR/USD pair’s upward potential.
Recent flash PMIs from the Eurozone revealed that the economy has stalled for the second consecutive month in October, coupled with slowing inflation. This data aligns with the European Central Bank‘s (ECB) perspective that the disinflationary process is well underway and supports the potential for further policy easing, likely undermining the Euro and capping the EUR/USD pair.
Market participants are now awaiting the release of the German Ifo Business Climate Index for further insights, along with key US macro data, including Durable Goods Orders and the revised Michigan Consumer Sentiment Index. These factors, along with US bond yields and broader risk sentiment, are expected to influence USD price dynamics and provide traders with short-term opportunities in the EUR/USD pair.
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