- EUR/USD stalled the previous day’s positive move near mid-1.1700s amid a modest USD strength.
- Hawkish Fed expectations, surging US bond yields helped revive the USD demand and capped gains.
- Investors also seemed reluctant to place aggressive bets ahead of the German elections on Sunday.
The EUR/USD pair struggled to capitalize on the previous day's solid rebound from one-month lows and remained below mid-1.1700s through the first half of the trading action on Friday.
Prospects for an earlier interest rate hike by the Fed pushed the yield on the benchmark 10-year government bond back above the 1.4% threshold for the first time since July on Thursday. This, in turn, helped revive the US dollar demand and was seen as a key factor that acted as a headwind for the EUR/USD pair.
It is worth recalling that the Fed on Wednesday indicated that it will likely begin rolling back the massive pandemic-era stimulus toward the end of this year and complete the process by mid-2020. Adding to this, the so-called dot plot revealed a growing inclination among policymakers to raise interest rates in 2022.
Apart from this, investors also seemed reluctant to place any aggressive bullish bets around the shared currency ahead of the key German federal elections on Sunday. This further collaborated to cap the upside for the EUR/USD pair, warranting some caution before confirming that the recent leg down has run its course.
Market participants now look forward to the release of the German Ifo Business Climate for some impetus. Traders might further take cues from Fed Chair Jerome Powell's scheduled speech later this Friday. This, along with the US bond yields, will influence the USD and produce some trading opportunities around the EUR/USD pair.
Technical levels to watch
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