EUR/USD remains confined in a range, below mid-1.1300s post-German IFO

• EUR/USD oscillated in a narrow trading band through the early part of the European session.
• The economic risks stemming from the Omicron variant acted as a headwind for the euro.
• The disappointing German IFO Business Climate Index did little to impress bullish traders.

The EUR/USD pair seesawed between tepid gains/minor losses and remained confined in a narrow trading band, below mid-1.1300s through the first half of the European session.

The European Central Bank (ECB) adopted a more hawkish stance on Thursday and announced that it will discontinue net asset purchases under the PEPP in March 2022. The ECB, however, warned about the uncertainty about the economic risk stemming from the rapid spread of the Omicron variant of the coronavirus and emphasized policy flexibility.

Apart from this, the disappointing release of the German IFO Business Climate Index, which fell to 94.7 in December from 96.6 previous, held back traders from placing bullish bets around the shared currency. That said, the post-FOMC US dollar selling bias continued lending some support to the EUR/USD pair and helped limit any meaningful slide.

The Fed on Wednesday announced that it would double the pace of tapering to $30 billion per month. Moreover, the so-called dot plot indicated that officials expect to raise the fed funds rate at least three times next year. The markets, however, had already priced in the prospects for a faster policy tightening, which, in turn, continued weighing on the USD.

Meanwhile, the EUR/USD pair's inability to gain any meaningful traction or capitalize on this week's goodish rebound from the 1.1220 area warrants some caution for aggressive bullish traders. This makes it prudent to wait for a strong follow-through buying before positioning for an extension of the recent bounce from the YTD low touched in November.

Technical levels to watch