EUR/USD refreshes multi-month top, eyes 1.0600 mark amid sustained USD selling

The EUR/USD pair is seen building on last week's breakout momentum beyond the very important 200-day SMA and gaining traction for the fourth straight day on Monday. The upward trajectory lifts spot prices to the 1.0585 area, or the highest level since late June and is sponsored by the prevalent bearish sentiment surrounding the US Dollar.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, sinks to over a five-month low amid expectations for a less aggressive policy tightening by the Fed. Market participants seem convinced that the US central bank will soften its stance and deliver a relatively smaller 50 bps rate hike at its upcoming meeting on December 13-14. This, along with the optimism over hopes for the easing of COVID-19 restrictions in China, continues to undermine the safe-haven buck.

That said, the upbeat US monthly jobs report released on Friday validates the view that the Fed will continue to tighten its monetary policy, although at a slower pace. An upside surprise in US job gains and wages points to a further rise in inflationary pressures, adding credence to Fed Chair Jerome Powell's forecast that the peak rate will be higher than expected. This, in turn, offers some support to the US Treasury bond yields, which should help limit the USD losses and keep a lid on the EUR/USD pair.

Furthermore, the European Central Bank (ECB) policymaker Francois Villeroy de Galhau sounded less hawkish and backed the case for a 50 bps rate hike in December. This might further hold back bulls from placing fresh bets around the EUR/USD pair, at least for the time being. Traders now look to the release of the final Services PMI prints from the Eurozone and the US. Later during the early North American session, the US ISM Services PMI should contribute to producing short-term opportunities around the EUR/USD pair.

Technical levels to watch