EUR/USD hovers around 1.0825 after retreating from three-week high

• EUR/USD regains some positive traction on Friday after Thursday’s whipsaw move.
• Investors scaled back bets on ECB rate cuts, which underpin the Euro.
• The prevalent risk-on environment weighs on the safe-haven USD and also acts as a tailwind.

The EUR/USD pair attracts some dip-buying on Friday and seems to have stalled the previous day's retracement slide from the vicinity of the 1.0900 mark, or a nearly three-week high. The risk-on rally across the global equity markets remains unabated,  preventing the US Dollar (USD) from capitalizing on the overnight bounce from its lowest level since February 2. The shared currency draws support from signs that the Eurozone economy may be on a slow path towards recovery, which should allow the European Central Bank (ECB) to wait until June before easing its monetary policy. This acts as a tailwind for the currency pair.

Meanwhile, the US data released on Thursday showed that business activity in the manufacturing sector grew at a faster pace in February, overshadowing a slight drop in the service sector growth. This, along with fresh signs of strength in the US labour market and hawkish remarks by several Federal Reserve (Fed) officials, reaffirms expectations that the central bank will keep interest rates higher for longer. The outlook supports elevated US Treasury bond yields and acts as a tailwind for the Greenback amid geopolitical risk, warranting some caution before placing aggressive bullish bets around the EUR/USD pair.

Daily digest market movers: Benefits from softer USD and reduced ECB rate cut bets

• The headline German IFO Business Climate Index matched estimates and rose to 85.5 in February from the 85.2 previous and the final GDP print confirmed that the Eurozone's largest economy contracted by 0.3% in Q4
• The prevalent upbeat mood across the global financial markets hit the safe-haven US Dollar and lent support to the EUR/USD pair amid reduced bets for more aggressive rate cuts by the European Central Bank.
• The S&P Global's flash Eurozone composite PMI remained in the contraction territory for the ninth straight month, although it improved to 48.9 in February from the 47.9 previous and suggested that the downturn is easing.
• The minutes of the January ECB policy meeting published on Thursday showed that inflation is coming under control, albeit talk of rate cuts was premature amid rapid wage growth and underlying price pressures.
• Eurozone government bond yields shot to a multi-month top and underpin the shared currency, while the USD struggles to build on its recovery from a multi-month low despite the Federal Reserve's hawkish outlook.
• The minutes of the late January FOMC meeting on Wednesday pointed to uncertainty over how long borrowing costs should remain at the current level to bring down inflation back to the central bank's 2% target.
• Furthermore, influential Fed officials – Fed Vice Chair Philip Jefferson, Fed Governors Lisa Cook and Christopher Waller – raised concerns about cutting rates too quickly amid sticky inflation and the US economic resilience.
• The CME Group's FedWatch Tool indicates that the markets are currently pricing in around a 30% chance that the Fed will cut interest rates in May, while the odds for a move at the June policy meeting stand at about 66%.
• The yield on the benchmark 10-year US government bond holds steady near its highest level since late November, which, along with geopolitical risk, should act as a tailwind for the buck and cap the currency pair.

Technical Analysis: EUR/USD bulls need to wait for acceptance above 200-day SMA

From a technical perspective, this week's breakout through the 23.6% Fibonacci retracement level of the December-February downfall was seen as a key trigger for bullish traders. Adding to this, oscillators on the daily chart have just started gaining positive traction and support prospects for additional gains. That said, the overnight failure to find acceptance above the very important 200-day Simple Moving Average (SMA) and the subsequent pullback warrants some caution.

In the meantime, any subsequent move up is likely to confront some resistance near the 1.0865 zone or the 38.2% Fibo. level, ahead of a multi-week high touched on Thursday. Some follow-through buying beyond the 1.0900 mark, meanwhile, has the potential to lift the EUR/USD pair further towards the 50% Fibo. level, around the 1.0965-1.0970 region. The momentum could extend further and allow bulls to reclaim the 1.1000 psychological mark for the first time since January 11.

On the flip side, the 1.0800 mark, or the 23.6% Fibo. level seems to protect the immediate downside. Any further decline is more likely to attract fresh buyers near the 1.0760 horizontal zone. The latter should act as a pivotal point, which if broken decisively will suggest that the recent recovery from a three-month low witnessed over the past two weeks or so has run out of steam already. The EUR/USD pair might then accelerate the downfall towards retesting sub-1.0700 levels.