EUR/USD climbs to fresh daily high, around mid-1.0600s on upbeat German data

• EUR/USD regains traction on Monday and snaps a two-day losing streak.
• A positive risk tone undermines the safe-haven USD and lends support.
• The upbeat German IFO Business Climate Index further provides a boost.
• The mixed fundamental backdrop warrants some caution for bullish traders.

The EUR/USD pair catches fresh bids on the first day of a new week and stalls its recent pullback from a six-month low touched last Thursday. Spot prices build on the steady intraday ascent through the first half of the European session and climb to a fresh daily high, around mid-1.0600s in the last hour.

The US Dollar struggles to capitalize on last week's recovery from its lowest level since mid-June and meets with a fresh supply on Monday, which, in turn, acts as a tailwind for the EUR/USD pair. A slight recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets is seen as a key factor undermining the safe-haven Greenback.

The shared currency draws additional support from the better-than-expected German IFO Business Climate Index, which improved to 88.6 in December from 86.4 previous. This comes on the back of hawkish signals from the European Central Bank, indicating that it will need to raise rates further to tame inflation, and remains supportive of the bid tone around the EUR/USD pair.

That said, a combination of factors should limit any deeper USD losses and cap gains for the EUR/USD pair, at least for the time being. Despite the easing of strict COVID-19 curbs in China, a sharp rise in new infections could delay the full reopening of the economy. This, along with the protracted Russia-Ukraine war, might keep a lid on any optimistic move in the markets.

Furthermore, a more hawkish commentary by the Fed last week supports prospects for the emergence of some USD dip-buying. In fact, the US central bank stated that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023. This, in turn, pushes the US Treasury bond yields higher and favours the USD bulls.

In the absence of any relevant market data from the US, the mixed fundamental backdrop warrants some caution before positioning for any further appreciating move for the EUR/USD pair. This, in turn, suggests that an intraday positive move could attract some sellers at higher levels and runs the risk of fizzling out rather quickly.

Technical levels to watch