Ella 
In Asia on Wednesday, the direction of EUR/USD was unclear, fluctuating within a narrow range near the 1.0700 integer mark.
The recent sharp fall in U.S. bond yields, coupled with the continued rebound in U.S. stocks, failed to boost the safe-haven dollar, which continued its rebound from its lowest level since September 20. This is therefore seen as a key tailwind for EUR/USD. However, as the Federal Reserve’s (Fed) interest rate hike path in the future is unclear, the dollar’s downside seems to have been buffered.
The Fed noted last week that financial conditions may have become restrictive enough to control inflation. The market believes this indicates that the Fed’s policy tightening campaign has ended. In addition, the weak monthly U.S. non-farm payrolls report released on Friday reaffirmed the view that the Federal Reserve will remain on hold for the third consecutive time in December. In other words, several Fed officials still adopted a hawkish stance and acknowledged that the U.S. economy remains resilient.
This therefore keeps alive the hope of further interest rate hikes by the Federal Reserve, which should bring some support to the dollar. Traders may also avoid aggressive directional bets ahead of Federal Reserve Chairman Jerome Powell’s speech later in early North American trading. Meanwhile, data on Tuesday showed that German industrial production fell more than expected in September, which could continue to weaken the euro and keep the euro/dollar exchange rate capped.
This, combined with expectations that the European Central Bank (ECB) may no longer raise interest rates, suggests that there is minimal resistance to the downside for EUR/USD. Market participants are now looking to final German CPI numbers and euro zone retail sales to get some momentum ahead of Powell’s speech. In addition, the expansion of U.S. bond yields and market risk sentiment will affect the trend of the U.S. dollar, which will create short-term trading opportunities for EUR/USD.
