The US employment data, released at the end of the previous week, allowed the greenback to renew its annual highs at 94.60 points
The data published on Friday showed the highest US job growth by 531,000 in three months in October and a decline of the unemployment rate to its lowest level by 4.6% since March 2020.
This data contributed to the USD strengthening, pushing EUR/USD to a 15-month low at 1.1514.
However, the pair was able to recoup its losses rather quickly and recovered to 1.1570 amid a wide dollar rebound.
The major Wall Street indices stimulated bulls in EUR/USD, which gained 0.2-0.6% on average and closed the past five days at new record highs.
The decline of the dollar was intensified by a 10-year Treasuries yield dropping to a 5-week low by 1.4360%.
Moreover, the greenback had been strengthening since the beginning of the week and investors decided to take profits before the weekend.
The dollar started the week positively, taking advantage of some weakening risk and a rebound in 10-year Treasury yields to 1.50%. However, this momentum did not continue. After updating to local highs around 94.30 the US currency resumed its decrease.
Meanwhile, the EUR/USD is struggling to extend its recovery from its lowest levels since July 2020, trading in a narrow range on Monday.
The publication of significant EU and US macro statistics is not scheduled for today. Therefore the main currency pair is influenced by the greenback dynamics.
Besides, the fundamental picture is still favorable for the dollar compared to the single currency. It means that EUR/USD recovery attempts may be held back by technical levels.
Experts at Westpac believe that strong data on the US labor market, the Fed's decision to begin winding down the asset buyback program, as well as the approval of the US House of Representatives the infrastructure investment plan will support the dollar.
According to experts, the divergence in rates of the US and European Central Banks will also favor the greenback.
At last week's FOMC meeting Federal Reserve Chairman Jerome Powell said that it was not the suitable time to raise interest rates as the national labor market had not fully recovered. He added that according to forecasts, it would happen no earlier than mid-2022. Until then, the Fed will display patience.
The data expected on Wednesday will likely point to a 5.8% year-over-year rise in US consumer prices in October. This will be a new major test for the US Central Bank. Its management insists on not rushing to raise rates.
Goldman Sachs, which recently changed its expectation of the Fed rate hike from the third quarter of 2023 to July 2022, believes an earlier hike could provide support to the dollar.
So far, the US Central Bank has promised to keep borrowing costs low despite the acceleration of inflation in the country.
As for the ECB, last Wednesday its head Christine Lagarde said that the regulator had previously set out clear conditions for raising interest rates and they would not be fulfilled in 2022.
According to strategists at Scotiabank, the EUR/USD pair has probably entered the consolidation phase. However, the break of 1.1500 is ahead and the test of 1.1400 will follow quickly.
The strategists said that a sharp fall of the pair for the last two weeks had strengthened the probability of testing 1.1500 amid the downward pressure since the end of May. They noted that the next support was only at 1.1422, and then at 1.1400, and its break would target EUR/USD at 1.1100. The strategists added that resistance was at 1.1600 and 1.1650.The material has been provided by InstaForex Company - www.instaforex.com