Following a two-day decline, EURUSD shifted into a recovery mode as risk aversion seems to be starting to abate. Earlier, high-yielding currencies including the euro came under pressure as geopolitical concerns reemerged after a US airstrike killed the Iranian military leader Qasem Soleimani and Iran has vowed to retaliate.
Late last week, the common currency dipped to local lows around 1.1125 but after a brief decline below the 200-daily moving average, the pair managed to trim losses and turned positive at the start of a new trading week. Now, EURUSD tries to get back above the 1.12 handle and sees solid intraday gains. In part, the recovery is due to a weaker safe-haven dollar demand as risk aversion has abated somehow. The USD index came under pressure and got off recent highs above 97.00. it looks like the continuation of the selling momentum is possible at this stage, with the next target coming at 96.30 area which could be retested in the short term should risk sentiment continue to improve.
Also, the single currency was supported by economic updates out of the Eurozone. In particular, investor confidence in the region unexpectedly improved in January. This was mainly due to a brighter economic picture in Germany and easing trade tensions between the United States and China. The index rose to 7.6 this month from 0.7 in December and against decline by 4.9 expected. Considering the latest fundamentals point to a better state of the region’s economy, concerns over a possible recession in the euro area seem to be abating gradually which in turn adds to the euro’s appeal.
From the technical point of view, the pair seems to be ready to get back above the 1.12 handle but as geopolitical tensions are back on the table, this driver could spoil the party for euro bulls and send the common currency lower should the conflict develop in the negative scenario. Still, as long as the pair remains above the 100-daily moving average around 1.1060, upside risks continue to persist. In the immediate term, the 1.12 figure will remain in focus.
