EUR/USD is trading higher amid a weakening US dollar. At the time of writing, the dollar index was down by 0.15% at $89.70. Earlier in the day, it was at a four-month low at $89.53. The decline has been fueled by a decline in Treasury yields. The benchmark 10-year US bond yields are down by 0.85% at 1.59. The 5 and 30-year yields have also dropped by 0.64% and 0.65% respectively.

The decline in US bond yields, and subsequent weakening of the US dollar, come as Fed officials continue to downplay inflation fears. Atlanta’s Fed President, Raphael Bostic has stated that inflation is a healthy component of the economy. This is especially because unemployment in the United States is still a problem. According to the US Bureau of Labour Statistics, unemployment rate in the country rose to 6.1% in April.

While speaking during his interview with CNBC’s Squawk Box, Bostic indicated, “We are still 8 million jobs short of where we were pre-pandemic. Until we make substantial progress to close that gap, I think we’ve got to have our policies in a very strongly accommodative situation or stance.”  

EUR/USD is also reacting to the better-than-expected business confidence numbers from Germany. Data released on Tuesday indicated that the largest European economy contracted by 1.8% in Q1’21 after growing by 0.3% in 2020’s final quarter. Analysts had expected a reading of -1.7%.

However, as the economy reopens, business confidence has heightened. According to the Ifo Institute, the business climate index is at 99.2 in May compared to the prior month’s 96.6. The figure also beat the estimates of 98.2.  

EUR/USD technical outlook

EUR/USD is trading higher after the bulls gathered enough momentum to push the price past the important resistance level of 1.2241. At the time of writing, the currency pair was up by 0.38% at 1.2262. On a four-hour chart, it is trading above the 25 and 50-day exponential moving average with an RSI of 69.

The formation of a rising wedge, which is a bearish pattern, signals the probable curbing of its gains. As such, I expect EUR/USD to rise higher to 1.2276. However, it may then decline to 1.2221.

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