EUR/USD remains on the defensive below 1.0700, Fed Chair Powell's speech in focus
|- EUR/USD struggles to gain any meaningful traction on Wednesday despite subdued USD price action.
- The risk-on mood and declining US bond yields cap the recent USD recovery from a multi-week trough.
- Expectations that the ECB is done raising rates seem to undermine the Euro and keep a lid on the pair.
The EUR/USD pair lacks any firm intraday direction on Wednesday and oscillates in a narrow trading band, around the 1.0700 round-figure mark during the Asian session.
The recent sharp pullback in the US Treasury bond yields, along with an extended rally in the US equity markets, fails to assist the safe-haven US Dollar (USD) to capitalize on this week's goodish recovery from its lowest level since September 20. This, in turn, is seen as a key factor acting as a tailwind for the EUR/USD pair. The downside for the USD, however, seems cushioned in the wake of the uncertainty over the Federal Reserve's (Fed) future rate hike path.
The US central bank last week noted that financial conditions may be tight enough already to control inflation. The markets took this as a sign that the Fed was done with its policy-tightening campaign. Adding to this, the softer US monthly jobs report released on Friday reaffirmed the view that the Fed will maintain the status quo for the third straight time in December. That said, several Fed officials took a hawkish stance and acknowledged the US economic resilience,
This, in turn, keeps hopes alive for a further interest rate increase by the Fed and should lend some support to the Greenback. Traders might also refrain from placing aggressive directional bets ahead of Fed Chair Jerome Powell's speech later during the early North American session. In the meantime, Tuesday data showing a larger-than-expected fall in German Industrial Production in September might continue to undermine the Euro and contribute to capping the EUR/USD pair.
This, along with expectations that additional rate hikes by the European Central Bank (ECB) may be off the table, suggests that the path of least resistance for spot prices is to the downside. Market participants now look to the release of the final German CPI print and the Eurozone Retail Sales for some impetus ahead of Powell's speech. Furthermore, the US bond yields and the broader risk sentiment will influence the USD, which should produce short-term opportunities around the EUR/USD pair.
Technical levels to watch
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