EUR/USD flirts with session lows, around 1.1700 mark ahead of Powell
- Resurgent USD demand prompted fresh selling around EUR/USD on Friday.
- Hawkish Fed, rising US bond yields, the cautious mood underpinned the USD.
- The downside seems limited ahead of the German federal elections on Sunday.
The EUR/USD pair refreshed daily lows during the early European session, with bears now awaiting a sustained break below the 1.1700 mark.
Following a brief consolidation through the first half of the trading action on Friday, the EUR/USD pair came under renewed selling pressure and eroded a major part of the overnight recovery gains. A combination of factors provided a strong boost to the US dollar, which, in turn, exerted some downward pressure on the major.
Lingering concerns over a spillover from China Evergrande's default weighed on investors' sentiment. Apart from this, the Fed's plan to taper its $120 billion in monthly bond purchases tempered appetite for perceived riskier assets. This was evident from a modest pullback in the equity markets and benefitted the safe-haven USD.
Meanwhile, the so-called dot plot indicated policymakers' inclination to raise interest rates in 2022. This continued pushing the US Treasury bond yields higher and further underpinned the USD demand. In fact, the yield on the benchmark 10-year US government bond shot 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 dropped to 98.8 in September from 99.4 previous. The downside, however, seems cushioned as investors might refrain from placing aggressive bets ahead of the German federal elections on Sunday.
Next on tap is Fed Chair Jerome Powell's scheduled speech and the release of the US New Home Sales data. This, along with the US bond yields and the broader market risk sentiment, might influence the USD and produce some trading opportunities around the EUR/USD pair.
Technical levels to watch