- Resurgent demand for the USD sparked further selling around the EUR / USD on Friday.
- The bullish Fed, rising US bond yields, and cautious state propped up the USD.
- The drop appears limited ahead of Sunday’s German federal elections.
The pair EUR/USD updated daily lows during early European session, and bears now expect a sustained break below 1.1700.
Following a brief consolidation during the first half of trading action on Friday, the EUR / USD came under renewed selling pressure and trimmed a significant portion of recovery gains overnight. A combination of factors gave the US dollar a strong boost, which in turn put some downward pressure on the pair.
Lingering concerns about China’s Evergrande default weighed on investor sentiment. Aside from this, the Fed’s plan to cut its $ 120 billion in monthly bond purchases dampened the appetite for perceived riskier assets. This was evident by a modest pullback in equity markets and benefited the dollar as a safe haven.
Meanwhile, the so-called dot plot indicated the inclination of policymakers to raise interest rates in 2022. This continued to drive US Treasury yields higher and further sustained demand for USD. In fact, the benchmark 10-year US government bond yield soared to 1,452% on Friday, or the highest level since July 2.
On the other hand, the shared currency was weighed down by the disappointing release of the German IFO Business Climate Index, which unexpectedly fell to 98.8 in September from 99.4 earlier. However, the decline appears muffled as investors could refrain from making aggressive bets ahead of Sunday’s German federal elections.
The next step is Fed Chairman Jerome Powell’s scheduled speech. This, coupled with US bond yields and broader market risk sentiment, could sway the USD and lead to some trading opportunities around the EUR / USD pair.
Technical levels
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