EUR/USD recovers from multi-month lows, outlook remains weak

• A modest USD pullback assisted EUR/USD to stage a modest recovery from multi-month lows.
• The upbeat US economic outlook, rising US bond yields might help limit any losses for the USD.
• Renewed COVID-19 jitters should further collaborate towards capping the upside for the major.

The EUR/USD pair edged higher through the Asian session and recovered a part of the overnight losses to fresh four-month lows. The pair was last seen trading around the 1.1780 region, up 0.15% for the day.

Despite concerns about a further escalation of diplomatic tensions between China and Western countries, the Asian equity markets kicked off on a position note. This, in turn, prompted some profit-taking around the safe-haven US dollar, which was seen as one of the key factors that extended support to the EUR/USD pair.

That said, the optimistic outlook for the US economy, the impressive pace of coronavirus vaccinations and a fresh leg up in the US Treasury bond yields should continue to underpin the greenback. Thursday's upbeat US Initial Jobless Claims added to the narrative of a relatively faster US economic recovery from the pandemic.

On the other hand, concerns about the economic fallout from the third wave of COVID-19 infections in Europe could keep a lid on any meaningful upside for the shared currency. Investors seem worried that pandemic-related restrictions could derail the fragile Eurozone economic recovery amid the slow pace of vaccinations.

The combination of factors might contribute towards capping gains for the EUR/USD pair. Traders now look forward to the release of the German Ifo survey, which is expected to show an improvement in business morale. Given that the sentiment around the euro remains weak, the market reaction to a stronger reading is likely to be limited.

Meanwhile, the US economic docket features the release of Personal Income/Spending figures for February, Core PCE Price Index and revised Michigan Consumer Sentiment index. The data, along with the US bond yields and the broader market risk sentiment, might influence the USD and also produce some trading opportunities around the EUR/USD pair.

Technical levels to watch