EUR/USD edges higher amid weaker USD, upside remains capped near 1.0660 area

• EUR/USD catches fresh bids on Thursday amid some renewed USD selling bias.
• Sliding US bond yields and a positive risk tone seem to weigh on the greenback.
• The lack of follow-through buying warrant caution for bulls amid recession fears.

The EUR/USD pair regains positive traction on Thursday and jumps to the top end of a one-week-old trading range during the first half of the European session, though lacks follow-through. The pair retreats a few pips from the daily top touched in the last hour and is currently placed just below mid-1.0600s, up over 0.30% for the day.

A combination of factors prompts fresh selling around the US Dollar, which, in turn, is seen lending some support to the EUR/USD pair. A generally positive tone around the equity markets continues to act as a headwind for the safe-haven greenback. Apart from this, the recent pullback in the US Treasury bond yields contributes to keeping the USD bulls on the defensive.

In fact, the yield on the benchmark 10-year US government bond moves away from the monthly top touched on Wednesday amid expectations that the Fed will pivot from an ultra-hawkish stance to something more neutral. It is worth recalling that the US central bank indicated last week that it will continue to raise borrowing costs to combat stubbornly high inflation.

The shared currency, on the other hand, is underpinned by a more hawkish stance adopted by the European Central Bank, indicating that it will need to raise rates significantly further to tame inflation. The upside for the EUR/USD pair, however, remains capped in the wake of looming recession risks, fueled by a surge in COVID-19 cases and the protracted Russia-Ukraine war.

In the latest geopolitical developments, Russia said that there is no chance of peace talks and that the continued arms supplies by Western allies to Ukraine would lead to a deepening of the ongoing conflict. This makes it prudent to wait for a sustained strength beyond the 1.0660 strong horizontal resistance before placing fresh bullish bets around the EUR/USD pair.

Traders now look to the US economic docket, featuring the final Q3 GDP print and the Weekly Initial Jobless Claims data. Apart from this, the US bond yields and the broader risk sentiment will influence the USD and provide some impetus to the EUR/USD pair. The focus, however, will remain on the US Core PCE Price Index (the Fed's preferred inflation gauge), due on Friday.

Technical levels to watch