EUR/USD trims losses but fails to recover 1.1300

• Lower US yields boost EUR/USD from near 1.1250 toward 1.1300.
• A decline in equity prices in Wall Street favors the greenback against commodity currencies.
• Market participants with focus on central banks.

The EUR/USD recovered from the lowest level in almost a week at 1.1259 and climbed to 1.1297. Near the 1.1300 area the euro lost momentum and the pair pulled back to 1.1270. It continues to move sideways, with a bearish bias.

The slide in US yields weighed on the greenback. The 10-year fell to 1.44% and the 30-year to 1.83%. The Dow Jones is falling by 0.85% and the Nasdaq by 0.65%.

Looking at central Banks

On Tuesday, the Federal Reserve will start its two-day meeting. “Fed officials are likely to strike a much more hawkish tone at this week's FOMC meeting than they did in November, although a major shift is now widely anticipated by markets participants. We expect the taper pace to be doubled and "transitory" dropped, with the median dot showing a 50bp increase in 2022. We expect enough slowing in inflation and growth in 2022 to delay rate hikes until 2023, but, for now, strong data are encouraging hawkishness”, explained analysts at TD Securities.

On Thursday, the “We expect that the ECB will continue to assess inflation as ‘transitory’.  Unlike the US there are few signs of second order wage inflation in the region.  Against this backdrop, we expect the size of the standard asset purchase programme (APP) to be increased to EUR 40 bln/mth”, mentioned analysts at Rabobank.

The divergence regarding expectations from the Fed and the ECB has been a key driver in the slide of EUR/USD. The meeting should be a critical even having a significant impact on the market.

Technical levels