EUR/USD attempts to hold 1.1600 as USD retreats, US GDP eyed

• EUR/USD recovers initial losses on Thursday in the Asian session.
• The US Dollar Index  turns slightly negative but still remains above 94.20.
• Fed’s tapering, US debt limit, government shutdown, higher energy prices cast mixed response for EUR/USD.

The EUR/USD pair has been tracking minor gains in the Asian session on Thursday. After posting a single day record fall of nearly 100 pips in the overnight session, the pair hovered in a narrow trade band of  10-pips. At the time of writing,  EUR/USD is trading at 1.1606, up 0.08% for the day.

The US Dollar Index (DXY), which tracks the performance of the greenback against the six majors, pares some of its initial gains, Nevertheless still looks strong above 94.20, which keeps EUR/USD gains limited.

The strong buying pressure in the greenback pushed EUR/USD below 1.1600 the lowest level since July 2020. Investors stay invested in the buck amid expectations for a tapering of Federal Reserve stimulus that could begin as soon as November and a possible interest rate hike in late 2022. In addition to that, concerns from the Chiefs of major central banks including the US, ECB and the UK on inflation and growth prospects also supported the US dollar. The US Fed Chair Jerome Powell while speaking at an ECB forum said it is a challenging job for the central bank to balance between high inflation and still-elevated unemployment. 

Meanwhile, traders remained cautious about the deadline for avoiding a US government shut down on Thursday. The US Senate Leader Schumer remained prepared for the vote on a stopgap bill to keep the government funded through to December 3.

On the other hand, the shared currency remained depressed amid divergence between ECB and US stance on tapering. ECB President Christine Lagarde avoids tighter monetary policy by saying not to overreact to transitory supply shocks. On the economic data data side, the Consumer Confidence came at -4.0 in September, up from -5.3 in the previous month whereas the Service Sentiment dropped 15.1 in September as compared to 16.8 in August.

As for now, traders are waiting for the German Harmonized Index of Consumer Prices, Unemployment Rate, the Eurozone Unemployment Rate, US Gross Domestic Product (GDP) data to gain fresh trading impetus.

EUR/USD additional levels