EUR/USD fills bearish gap and climbs to 1.1900 area, upside seems limited
- EUR/USD opened with a bearish weekly gap, albeit found decent support ahead of 100-day SMA.
- Retreating US bond yields capped any strong gains for the USD bulls and helped limit the slide.
- A combination of factors warrants some caution before placing fresh bullish bets around the pair.
The EUR/USD pair filled the weekly bearish gap and was last seen trading just below the 1.1900 mark heading into the European session.
The pair attracted some buying ahead of 100-day SMA and for now, seems to have stalled its recent pullback from the vicinity of the key 1.2000 psychological mark. The yield on the benchmark 10-year US government bond retreated further from over one-year tops touched last week and held the US dollar bulls from placing aggressive bets. This, in turn, was seen as a key factor that extended some support to the EUR/USD pair.
That said, worries that events in Turkey will cause disruptions in other financial markets might continue to underpin the safe-haven USD. It is worth reporting that Turkish President Tayyip Erdogan stunned investors over the weekend and replaced the hawkish central bank governor with a critic of high-interest rates. The developments weighed on investors' sentiment, which was evident from a weaker tone around the equity markets.
Apart from this, the upbeat US economic outlook might continue to extend some support to the greenback and keep a lid on any runaway rally for the EUR/USD pair. Investors remain optimistic about the prospects for a relatively faster US recovery from the pandemic. This has been fueling expectations for a possible uptick in the US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period.
On the other hand, the shared currency might struggle to gain any meaningful traction amid concerns about a new wave of COVID-19 infections in Europe and pandemic-related lockdown. This further warrants some caution for bullish traders and before positioning for any meaningful upside for the EUR/USD pair. Hence, it will be prudent to wait for some strong follow-through buying before confirming that the recent downfall has run its course.
Market participants now look forward to the release of EU Current Account figures and the US Existing Homes Sales data for some impetus. The key focus, however, will be on Fed Chair Jerome Powell's comments at a virtual panel discussion. This, along with speeches by a slew of influential FOMC member, will influence the USD price dynamics and further contribute to produce some meaningful trading opportunities around the EUR/USD pair.
Technical levels to watch