• EUR/USD was seen consolidating its recent losses to the lowest level since early July 2020.
  • Rising COVID-19 infections in Europe weighed on the euro amid sustained USD buying.
  • Hawkish Fed expectations, elevated US bond yields held the USD near a 16-month peak.

The EUR/USD pair remained on the defensive through the mid-European session and was last seen trading with modest losses, around the 1.1275-70 region.

The pair, so far, has struggled to register any meaningful recovery and remained well within the striking distance of a 16-month low touched on Friday. The shared currency remained on the defensive amid worries about the economic fallout from the return of COVID-19 restrictions in Europe.

Austria said that it would be the first country in Western Europe to reimpose a full lockdown to tackle rising infections, while Germany warned that it may follow suit. This could provide the European Central Bank with another reason to go slow on tightening its monetary policy.

Conversely, the US dollar stood tall near the highest level since July 2020 and remained well supported by hawkish Fed expectations. In fact, the Fed funds futures indicate the possibility for an eventual Fed rate hike move in July 2022 and a high likelihood of another raise by November.

The market speculations were reaffirmed by a fresh leg up in the US Treasury bond yields, which, in turn, acted as a tailwind for the greenback. The fundamental backdrop supports prospects for further losses, though oversold conditions held back traders from placing fresh bearish bets.

Nevertheless, the EUR/USD pair seems vulnerable to prolong its bearish trajectory and any recovery attempt might still be seen as a selling opportunity. Traders now look forward to the release of the Eurozone Consumer Confidence Index and the US Existing Home Sales data for a fresh impetus.

Technical levels to watch

This article was originally published by Fxstreet.com.Read the original article here.

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