EUR/USD Gains Modestly Above Mid-1.0900

EUR/USD showed a positive trend for the second consecutive day on Friday, but there was a lack of follow-up, and the Asian market remained limited to the previous day’s larger trading range. EUR/USD is currently hovering above the mid-1.0900 level, with traders eagerly awaiting some significant push from key macro data from the Eurozone and the US.

Eurozone inflation data will be released at 18:00 Beijing time, followed by the crucial US non-farm payrolls in early North American trading. These key data will play a key role in influencing market expectations for the next policy moves from the European Central Bank (ECB) and the Federal Reserve (FED), thereby determining the near-term trend of the EUR/USD currency pair.

EUR/USD was supported by an unexpected upward revision in the euro zone’s Purchasing Managers’ Index (PMI) on Thursday, forcing investors to reduce their bets on more aggressive interest rate cuts from the European Central Bank amid key data risks. Indeed, money markets are pricing in 156 basis points of rate cuts from the ECB this year, about 10 basis points less than Wednesday. The above factors and the weakness of the US dollar on Friday, the last trading day of the week, are considered positive factors for EUR/USD.

However, the dollar’s downside remains subdued as markets bet on multiple early interest rate cuts by the Federal Reserve in 2024, especially after an upbeat U.S. labor market report on Thursday. This remains supportive of rising U.S. Treasury yields. Beyond this, the maintenance of widespread risk aversion in the market may further benefit the dollar’s relative safe-haven status and prevent traders from making aggressive bullish bets on EUR/USD.

Therefore, it would be prudent to wait for strong follow-through buying before confirming that EUR/USD’s recent consolidation decline from the 1.1135-1.1140 area (or the five-month high hit in December) is over. Still, EUR/USD is on track to post its first major loss in the past four weeks.

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