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EUR/USD consolidates amid another round of strength in the greenback

EUR/USD is holding above $1.08 in early European trade, after failing to push above $1.086 to start the week. Traders remain cautious about the outlook for the eurozone, ahead of the ECB policy meeting scheduled for Thursday.

EUR/USD remains range bound following a brief rally

After bouncing off monthly lows to start the week, the euro’s rally proved to be short-lived.

While USD sellers briefly gained the ascendancy on Friday, Monday trade on global markets gave rise to a renewed bout of strength in the greenback as the US dollar index climbed back over 100.

In turn, EUR/USD met resistance near $1.086, as its rally from a monthly low of $1.0725 on Friday ran out of steam.

EUR/USD then consolidated into Asian markets on Tuesday, where it traded within a narrow range above $1.08.

Increase strength in the US dollar was accompanied by a rise in US bond yields, with benchmark ten-year yields climbing back above 0.65% - the highest level in more than a week.

With no headline data releases on the schedule on Tuesday for either US markets or the eurozone, EUR/USD looks set to remain range bound between $1.07 and $1.10 – a level its maintained throughout the month of April after volatility spiked in Marc

Despite headwinds, a sense of cautious optimism

With no meaningful break either side of its recent trading range, markets will be watching for unexpected results from key event risk to drive the broader direction of EUR/USD.

In the near term, Thursday’s European Central Bank (ECB) meeting will be in focus, with markets looking for guidance from the central bank about additional asset purchases or yield support programs.

However, the broader (and unresolved) issue around a combined Covid-19 support package remains at the forefront, where two key questions remain; how large the amount, and what terms will be negotiated for receipt of the funds – particularly by heavily indebted member states.

As for the health crisis itself, markets are also watching developments with a degree of cautious optimism.

Among the major economies – France, Germany and Italy – that have been hit hard by the virus, member states reported their lowest daily death rates in more than a month to start the week.

Italy also announced plans to begin a phased easing of social distancing restrictions, starting on 4 May.

In the US virus epicentre of New York, infection rates are also slowing. For now, social distancing rules are expected to remain in place until 15 May.

If positive trends around infection and mortality rates continue it could provide a boost for risk appetite, which in turn may weigh on the US dollar which has traded as a safe-haven currency through the height of the crisis.

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