EUR/USD bounces back to 1.1300 mark, upside potential seems limited

The EUR/USD pair quickly recovered a few pips from the early European session low and was last seen trading with only modest intraday losses, around the 1.1300 mark.

The pair struggled to capitalize on Friday's goodish rebound of around 70 pips and met with a fresh supply on the first day of a new week amid renewed US dollar buying interest. The prospects for a faster policy tightening by the Fed continued acting as a tailwind for the US dollar, which, in turn, was seen as a key factor that exerted some pressure on the EUR/USD pair.

Despite Friday's mixed US NFP report, investors seem convinced that the Fed would be forced to hike rates sooner rather than later to contain stubbornly high inflation. In fact, the Fed funds futures indicate a high probability of the Fed liftoff by May 2022. This, along with a solid bounce in the US Treasury bond yields, provided a modest lift to the greenback.

That said, the risk-on impulse in the financial markets held back traders from placing aggressive bullish bets around the safe-haven USD and helped limit any deeper losses for the EUR/USD pair. The global risk sentiment stabilized a bit on the back of reports, suggesting that the Omicron variant of the coronavirus variant may be causing only relatively mild infections.

On the economic data front, German factory orders slumped 6.9% MoM in October, while the Eurozone Sentix Investor Confidence Index fell from 18.3 in November to 13.5 for the current month. This marked the lowest levels since April and did little to impress bullish and capped gains for the EUR/USD pair, warranting some caution before positioning for any meaningful gains.

There isn't any major market-moving economic data due for release from the US on Monday, leaving the USD at the mercy of the US bond yields. Apart from this, developments surrounding the coronavirus saga and the broader market risk sentiment will influence the USD price dynamics. This should allow traders to grab some short-term opportunities around the EUR/USD pair.

Technical levels to watch