EUR/USD struggles for a firm direction, stuck in a narrow band just above 1.0600 mark

• EUR/USD extends its sideways consolidative price action and remains confined in a range.
• The Fed’s hawkish outlook, rising US bond yields underpin the USD and act as a headwind.
• The risk-on impulse caps gains for the safe-haven buck and lends some support to the pair.

The EUR/USD pair continues with its struggle to gain any meaningful traction and remains confined in a narrow trading band held since the beginning of this week. The pair, however, manages to hold its neck above the 1.0600 mark through the first half of the European session on Wednesday.

The US Dollar regains some positive traction and reverses a part of the overnight sharp fall, which, in turn, is seen acting as a headwind for the EUR/USD pair. The Bank of Japan's policy tweak triggered a sell-off in bond markets on Tuesday and pushed the US Treasury bond yields higher. Apart from this, the Federal Reserve's hawkish commentary last week lifts the yield on the benchmark 10-year US government bond to a fresh monthly top and benefits the greenback.

That said, a goodish recovery in the global risk sentiment - as depicted by a generally positive tone around the equity markets - seems to cap gains for the safe-haven buck. Furthermore, hawkish signals from the European Central Bank (ECB), indicating that it will need to raise rates significantly further to crush inflation, underpins the shared currency. The combination of factors offers some support to the EUR/USD pair and helps limit the downside, at least for now.

On the data front, the Gfk German Consumer Confidence Index improves to -37.8 for the current month from -40.1 in November, though does little to provide any impetus. Market participants now look forward to the US economic docket, featuring the release of the Conference Board's Consumer Confidence Index. This, along with the US bond yields and the market risk sentiment, will influence the USD and produce short-term opportunities around the EUR/USD pair.

Technical levels to watch