EUR/USD sticks to modest intraday gains, hovers around mid-1.0600s post-Eurozone PMIs

• EUR/USD regains some positive traction on Friday amid a modest USD weakness.
• The ECB’s hawkish outlook acts as a tailwind for the Euro and remains supportive.
• A combination of factors should limit the USD losses and cap the upside for the pair.

The EUR/USD pair attracts some dip-buying on Friday and reverses a part of the overnight retracement slide from its highest level since June 9. The pair sticks to its modest intraday gains through the first half of the European session and is currently trading around mid-1.0600s.

The European Central Bank struck a hawkish tone on Thursday and indicated that it will need to raise borrowing costs significantly further to tame inflation. This, in turn, continues to act as a tailwind for the shared currency. Apart from this, the emergence of fresh US Dollar selling is seen lending some support to the EUR/USD pair.

On the economic data front, the flash version of the Eurozone PMIs showed a slight improvement in the private-sector business activity during December. The gauge, however, remains in contraction territory, which, along with looming recession risks, might hold back bulls from placing fresh bets around the Euro and cap the EUR/USD pair.

The USD downtick, meanwhile, is likely to remain limited amid a hawkish assessment of the FOMC decision on Wednesday, signalling that it will continue to raise rates to crush inflation. Furthermore, the prevalent risk-off mood should help revive demand for the safe-haven greenback and contribute to keeping a lid on the EUR/USD pair.

Even from a technical perspective, repeated failures to find acceptance above the 1.0700 mark could be seen as the first sign of bullish exhaustion. This makes it prudent to wait for some follow-through buying before positioning for an extension of the EUR/USD pair's well-established uptrend witnessed over the past month or so.

Traders now look to the release of the flash US PMI prints for the current month, due later during the early North American session. This, along with the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the EUR/USD pair. Nevertheless, spot prices remain on track to register the highest weekly close since May.

Technical levels to watch