EUR/USD erases losses as risk tone recovers, dovish Fed expectations persist

EUR/USD has reversed early losses, with the risk assets regaining poise despite rising odds of coronavirus-induced lockdown restrictions in major economies. 

EUR/USD bounces from 1.1850

The pair is currently trading near 1.1868, representing marginal gains on the day, having put in a low of 1.1850 during the Asian session. 

Asian stock markets got off to a negative start early Tuesday. This happened after some overnight losses on Wall Street, as investors sold risk on concerns that the US authorities would impose the economically-painful lockdown restrictions to contain the coronavirus outbreak. As such, the dollar picked up a bid and pushed EUR/USD lower. 

However, the haven demand for the dollar has weakened in the past couple of hours, with the major Asian indices such as Hong Kong's Hang Seng and the Shanghai Composite carving out gains. 

The uptick could be associated with the expectations for a coronavirus-driven swift global economic recovery in 2021 and dovish Federal Reserve (Fed) expectations. 

Investors believe the Fed would do the heavy lifting to compensate for the US Congress' inability to approve a fiscal stimulus deal. The central bank recently expressed a willingness to do more if required. 

Additional bullish pressure for the EUR could be stemming from hopes for an EU fiscal deal. On Tuesday, European Economics Commissioner Paolo Gentiloni said that he expects a positive solution to Poland and Hungary's blockage of the EU's 1.8 trillion euro ($2.14 trillion) financial package to revive the bloc's COVID-hit economy. 

The risk reset and the bearish sentiment around the dollar could keep the EUR/USD better bid in Europe. The final Eurozone Consumer Price Index for October, due at 10:00 GMT, may not have a significant impact on the euro unless the data carries a significant downward revision to the recently published preliminary forecasts. That would validate the need for additional European Central Bank easing. 

Technical levels