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Euro US Dollar Exchange Rate Mounts Recovery as US Dollar Rally Runs out of Steam

Euro US Dollar Exchange Rate Benefitting from Pull Back on US Dollar 

Despite a lack of upside surprises in the Eurozone outlook, the Euro US Dollar (EUR/USD) exchange rate is climbing this week. Investors are selling the US Dollar (USD) from highs slightly following recent bullishness in the currency. 

Last week saw continued bullishness in the US Dollar, as EUR/USD plummeted from the week’s opening levels of 1.2137. Near the end of the week, EUR/USD touched on a two month low of 1.1954. 

However, EUR/USD was ultimately able to hold above the key level of 1.20, and closed the week in the region of 1.2047. 

Since markets opened this week, EUR/USD has been a bit more bullish as markets reassess recent US Dollar bullishness. At the time of writing, EUR/USD trends near the level of 1.2100. 

Euro (EUR) Exchange Rates Recover but Advances Limited 

In recent weeks, concerns over the Eurozone’s struggles to secure coronavirus vaccine doses left the Euro (EUR) unappealing. 

This mood has calmed down slightly this week, making it easier for the Euro to recover against weaker performance in its rival the US Dollar. 

However, amid a lack of fresh good news for the Eurozone outlook either, investors are hesitant to keep buying the EUro too much. 

According to Valeria Bednarik, Chief Analyst at FXStreet: 

‘Germany published the December Trade Balance, which posted a surplus of €16.1 billion, below expected. In the same month, the Current Account Balance was also below expected but improved to €28.2 billion from €21.2 billion in November. 

EUR/USD has surged past the 38.2% retracement of its November/January rally at 1.2070, the immediate support level. Now trading around 1.2100, the 4-hour chart shows that technical indicators are losing bullish momentum after reaching overbought levels.’ 

US Dollar (USD) Exchange Rates Fall from Highs after Weeks of Gains 

Investors have been selling the US Dollar back from its best levels this week so far. Markets are taking profit from the US Dollar’s recent gains, and shifts in Treasury yields also influenced the currency. 

Markets are speculating that big US fiscal spending combined with ultra-loose monetary policy from the Federal Reserve will keep the US Dollar pressured. According to Kenneth Broux, Strategist at Societe Generale in London: 

‘There has been an impressive pullback in US Treasury yields overnight which is causing the broad-based Dollar weakness before the bond auctions this week’ 

Today’s business optimism data from NFIB fell short of expectations. 

Euro US Dollar (EUR/USD) Exchange Rate Could be Influenced by Inflation Tomorrow 

Wednesday’s session will see the publication of German and US inflation rate results from January. 

Stronger than expected Eurozone inflation could offset concerns about potential monetary policy action from the European Central Bank (ECB). 

However, if ECB President Lagarde continues to express concern over the Euro’s strength in tomorrow’s speech, this could also dampen the Euro’s appeal. 

Still, if the US Dollar continues to pull back from recent highs, EUR/USD is likely to keep climbing. 

Tomorrow’s US wholesale inventories data may also influence EUR/USD. Developments in the coronavirus pandemic and US fiscal stimulus will likely remain the biggest factors in Euro US Dollar (EUR/USD) exchange rate movement however.