EUR/USD surrenders modest intraday gains, flat-lined below mid-1.1200s

• EUR/USD struggled to capitalize on its modest intraday recovery from a multi-month low.
• Fresh COVID-19 jitters undermined the euro and capped the upside amid a stronger USD.
• Hawkish Fed expectations, elevated US bond yields acted as a tailwind for the greenback.

The EUR/USD pair surrendered a major part of its intraday gains and retreated back below mid-1.1200s heading into the North American session.

The pair gained some positive traction on Tuesday and recovered around 50 pips from the 1.1225 area, or the lowest level since July 2020. The uptick was further supported by upbeat German/Eurozone PMI prints for November, though a combination of factors capped the upside for the EUR/USD pair.

Investors now seem concerned about the economic fallout from the rising number of COVID-19 infections and the reimposition of lockdown measures in Europe. This could provide the European Central Bank (ECB) another reason to be more dovish, which, in turn, acted as a headwind for the shared currency.

On the other hand, the prospects for an early policy tightening by the Fed assisted the US dollar to hold steady near a 16-month peak. The markets bets were reinforced after US President Joe Biden nominated Jerome Powell to serve as the chairman of the Federal Reserve for a second term.

Meanwhile, expectations for an eventual Fed rate hike move pushed the yield on the benchmark 10-year US government bond back above the 1.65% threshold. This was seen as another factor that underpinned the greenback and kept a lid on any meaningful recovery for the EUR/USD pair, at least for now.

Market participants now look forward to the release of the flash US PMIs for some impetus during the early North American session. The focus, however, will be on Wednesday's release of the Prelim (second estimate) US Q3 GDP, Durable Goods Orders, Core PCE Price Index and the FOMC meeting minutes.

Technical levels to watch