EUR/USD teases 1.1800 on Fed led optimism, German CPI eyed

• EUR/USD edges higher around three-week high amid a lackluster session.
• Fed’s Powell hints at tapering but timing, rate hike clues triggered risk-on mood.
• Virus woes, geopolitics challenge bulls but bears refrain from taking risks.
• German inflation could renew ECB tapering chatters, US Pending Home Sales will also decorate the calendar.

EUR/USD prints mild gains around 1.1800, after an upbeat end to the trading week, heading into Monday’s European session. The major currency pair cheer Federal Reserve Chairman Jerome Powell’s Jackson Hole speech to recall the bulls but a sluggish session seems to challenge the upside momentum of late.

Powell’s power of playing with words can’t be undermined as the Fed Boss teased tapering on Friday but managed to fuel risk-on mood. The reason could be linked to an absence of exact timing of tapering and indicated a gap between the taper and rate hike. Also, comments like “We will be carefully assessing incoming data and the evolving risks,” offered extra confirmation to the markets that the easy money policy is here to stay, at least for now.

In addition to the lack of major data/events in Asia, challenges to risk appetite from the coronavirus and geopolitical front could also be cited as extra filters to the north. Furthermore, EUR/USD traders’ caution ahead of Germany’s preliminary Harmonized Index of Consumer Price (HICP), the key inflation gauge of the bloc’s powerhouse, adds to the pair’s trading barriers.

Australia refreshes record covid infections and Japan is troubled as the expiry of virus-led emergency nears in the 21 of Japan's 47 prefectures on September 12. Germany’s covid numbers ease from the addition of 10,303 new Covid-19 cases to extra 4,559 infections during the weekend, per Reuters. Also, the latest death toll eased from 22 virus-led fatalities to an addition of 10. Reuters quotes Robert Koch Institute (RKI) data to say that Germany reports 3,937,106 confirmed coronavirus cases (+4,559), 92,140 coronavirus deaths (+10).

Elsewhere, Hurricane Ida and the US-China tensions, coupled with the Western dislike for the Taliban’s ruling in Afghanistan, also challenge the EUR/USD bulls due to the US dollar’s safe-haven status. While Ida eased to category 3 storm, US President Joe Biden’s criticism of Beijing’s meddling into the virus origin inquiry and refrain to hold Taliban accountable for the latest attack on the Kabul airport flash mixed signals.

Against this backdrop, US Dollar Index (DXY) refreshes two weeks low to 92.61 whereas S&P 500 Futures and the US 10-year Treasury yields remain indecisive by the press time.

Moving on, Germany’s HICP for August, expected 3.4% versus 3.1% YoY, can avail another reason to the Bundesbank hawks to push the European Central Bank (ECB) towards tapering, which in turn could help EUR/USD bulls. However, a shift in the market sentiment and disappointment from US Pending Home Sales for July and Dallas Fed Manufacturing Business Index for August should be observed too.

Technical analysis

A clear break of 20-DMA and a three-month-old falling trend line, around 1.1760, gains support from bullish MACD to signal further upside of the EUR/USD prices toward the previous month’s peak near 1.1910.