EUR/USD flirts with weekly top around 1.1340 area amid subdued trading action
|- EUR/USD gained some positive traction on Friday and moved back to the weekly high.
- The risk-on mood continued underpinning the safe-haven USD and extended support.
- The Fed’s hawkish outlook should limit the USD losses and cap the upside for the pair.
The EUR/USD pair edged higher through the first half of the European session and was last seen hovering near the weekly high, just below the mid-1.1300s.
The pair gained some positive traction on the last day of the week and is now looking to build on this week's goodish bounce from the 1.1235 region touched on Monday. The prevalent risk-on environment continued acting as a headwind for the safe-haven US dollar, which, in turn, was seen as a key factor that provided a modest lift to the EUR/USD pair.
The latest optimism was fed by reports that the Omicron variant might be less severe than previously feared and it supported the underlying bullish sentiment in financial markets. Adding to this, various studies indicated that Omicron infections are less likely to lead to hospitalization and severe disease, which further boosted investors' confidence.
That said, the year-end thin liquidity conditions held back traders from placing aggressive directional bets. This, along with the Fed's hawkish outlook, should help limit any meaningful USD losses and cap the upside for the EUR/USD pair. This, in turn, warrants some caution before positioning for any further appreciation for the major.
It is worth recalling that the so-called dot plot indicated that the Fed could hike rates at least three times next year. The expectations were reaffirmed by the US Personal Consumption Expenditures (PCE) Price Index, which accelerated to 5.7% YoY in November. This marked the largest annual growth since 1982 and validated expectations for an eventual Fed liftoff.
The fundamental backdrop seems tilted in favour of USD bulls. Even from a technical perspective, the EUR/USD pair has been oscillating in a familiar trading range since the beginning of this month. This further makes it prudent to wait for a strong follow-through buying before confirming that the pair might have already formed a near-term bottom.
Technical levels to watch
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.