EUR/USD bounces off 1.0900 mark, keeps the red amid modest USD strength

EUR/USD drifts lower for the second straight day on Wednesday amid renewed USD buying.
The better-than-expected German Industrial Production data helps limit any further losses.
A combination of factors caps the upside for the USD and warrants caution for bearish traders.

Haresh Menghani FXStreet

The EUR/USD pair remains under some selling pressure for the second straight day on Wednesday, albeit manages to hold its neck above the 1.0900 mark through the early European session. The downtick is sponsored by the emergence of some US Dollar (USD) buying, though the fundamental backdrop warrants caution before positioning for an extension of this week's pullback from the 1.1000 psychological mark, or a seven-month peak.

The US Treasury bond yields build on the overnight advance, which was their biggest rise since early June, and assist the USD to recover further from its lowest level since January touched on Monday. Adding to this, the European Central Bank's (ECB) downbeat view of the Eurozone's economic prospects continues to undermine the shared currency and exert some downward pressure on the EUR/USD pair. That said, the upbeat German macro data offers some support to spot prices and helps limit any further losses.

The latest data published by Destatis showed Germany’s industrial sector returned to expansion in June and the output in the Eurozone’s top economy increased by 1.4% MoM as against an expected increase of 1.0% and a 2.5% drop registered in May. Furthermore, a positive risk tone around the global equity markets, along with dovish Federal Reserve (Fed) expectations, caps the upside for the safe-haven buck. This, in turn, acts as a tailwind for the EUR/USD pair and warrants some caution for aggressive bearish traders.

In the absence of any relevant market-moving economic data, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through selling before confirming that spot prices have topped out in the near term. From a technical perspective, a sustained break and acceptance below the 1.0900 mark could be seen as a key trigger for bearish traders and pave the way for some meaningful downside for the EUR/USD pair. Bulls, meanwhile, might wait for a move beyond mid-1.0900s before placing fresh bets.

Economic Indicator

Industrial Production s.a. (MoM)

The Industrial Production released by the Statistisches Bundesamt Deutschland measures outputs of the German factories and mines. Changes in industrial production are widely followed as a major indicator of strength in the manufacturing sector. A high reading is seen as positive (or bullish) for the EUR, whereas a low reading is seen as negative (or bearish).

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