EUR/USD marches towards 0.9900 on firmer sentiment, EU’s energy proposal, Fed bets in focus

• EUR/USD seesaws around one-week high, mildly bid during the second positive day.
• Risk-on mood weigh on the DXY despite hawkish Fed bets, firmer US inflation expectations.
• European Commission to propose gas price cap, “dynamic price” seems the last resort.
• EU ZEW numbers, risk catalysts can also challenge intraday buyers amid light calendar elsewhere.

EUR/USD bulls take a breather around mid-0.9800s while keeping the previous day’s rebound near the highest levels in eight days during early Tuesday morning in Europe. That said, the major currency pair recently retreats from the intraday high as traders turn cautious ahead of the second-tier data for Eurozone and Germany, as well as certain key risk catalysts.

The pair’s latest gains could be linked to the risk-on mood as traders still cheer the UK Chancellor’s reversal of the most “mini-budget” proposals that gained major criticism and raised fears of widespread recession.

Also favoring the EUR/USD buyers could be the recently hawkish comments from the European Central Bank (ECB) policymakers versus the downbeat US data. Bundesbank President Joachim Nagel, ECB Vice President Luis de Guindos and ECB Governing Council member Olli Rehn were among them. Not only rate hike concerns but the Quantitative Tightening (QT) has also been on the ECB’s agenda and favors the pair buyers.

On the other hand, NY Empire State Manufacturing Index for October dropped -9.5 versus -4.0 expected and -1.5 prior.

Additionally, Comments from the comments from US Treasury Secretary Janet Yellen, suggesting a strong US jobs market, as well as upbeat US inflation expectations as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, also test the EUR/USD buyers.

Amid these plays, S&P 500 Futures track Wall Street’s gains but the US 10-year Treasury yields retreat to 3.97%, which in turn favors the US Dollar Index (DXY) bears of late.

Moving on, downbeat expectations from Germany’s ZEW figures for October contrast with the likely improvement in the Eurozone sentiment index, which in turn may trouble the EUR/USD buyers. Also likely to challenge the pair buyers are the pessimism surrounding the bloc’s gas price cap as the European Commission is up for proposing the issue. “The European Commission is set to propose this week a last-resort "dynamic" price cap for natural gas in the European Union and mandatory limits on the degree to which traded prices can fluctuate in a single day, according to a draft proposal,” stated Reuters.

Technical analysis

A five-week-old resistance line, near 0.9880, restricts short-term EUR/USD upside. Even so, the pair remains on the buyer’s radar unless reversing Monday’s breakout of the 21-DMA, around 0.9780 by the press time.