EUR/USD sticks to modest gains around 1.1600, lacks follow-through

• EUR/USD gained traction for the third successive day amid sustained USD selling bias.
• The risk-off impulse helped limit the USD losses and capped the upside for the major.
• Investors await speeches by ECB’s Lagarde and Fed’s Powell for some trading impetus.

The EUR/USD pair held on to its modest intraday gains through the first half of the European session, albeit seemed struggling to capitalize on the move beyond the 1.1600 mark.

The pair edged higher for the third successive day on Tuesday and built on its modest rebound from the lowest level since July 2020, touched in reaction to the upbeat US NFP report on Friday. The US dollar remained on the defensive in the wake of the Fed's dovish outlook and was further pressured by a fresh leg down in the US Treasury bond yields. This, in turn, was seen as a key factor that acted as a tailwind for the EUR/USD pair, though a combination of factors capped any further gains.

The Fed last week indicated that policymakers were in no rush to raise borrowing costs. Investors, however, seem convinced that the US central bank would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculations were further fueled by the overnight hawkish comments by a slew of FOMC members, signalling that the central bank could raise rates by the end of 2022. This, along with a softer risk tone, helped limit losses for the safe-haven USD.

On the economic data front, the German ZEW Economic Sentiment Index surpassed even the most optimistic estimates and jumped to 31.7 for the current month from 22.3 in October. Additional details revealed that the Current Situation Index fell to 12.5 in November as against consensus estimates for a reading of 18 and 21.6 previous. The data did little to impress bullish traders or provide any meaningful impetus to the EUR/USD pair, which remains at the mercy of the USD price dynamics.

Market participants now look forward to the European Central Bank President Christine Lagarde's scheduled speech for some impetus. Later during the early North American session, traders will take cues from the release of the US Producer Price Index and Fed Chair Jerome Powell's remarks at an online conference. This, along with the US bond yields and the broader market risk sentiment, will influence the USD and produce some meaningful trading opportunities around the EUR/USD pair.

Technical levels to watch