EUR/USD trades modest gains on weaker USD, remains below 1.1000

• EUR/USD attracts some buyers on Friday amid a modest decline in the US dollar.
• Dovish Fed expectations and a positive risk tone weigh on safe haven money.
• Bets on more ECB rate cuts could act as a headwind for the euro and limit gains.

EUR/USD is building on the previous day’s late bounce back from the 1.0950 area and gaining some positive traction during the Asian session on Friday. Spot prices, however, are struggling to capitalize on the rally and are currently trading around the 1.0975-1.0980 region, up just over 0.05% on the day.

A combination of factors is driving fresh selling around the US dollar (USD), which in turn is seen to provide some support to the EUR/USD pair. Despite upbeat US macro data on Thursday, investors appear confident that the Federal Reserve (Fed) will begin its policy easing cycle in September and has fully priced in a 25 key rate cut. This, in turn its, triggering a modest pullback in US Treasury bond yields and putting downward pressure on the dollar.

Apart from this, the prevailing risk-on mood – as exemplified by a positive tone in global equity markets – is proving to be another factor undermining demand for the safe-haven greenback. That said, the risk of conflict spreading in the Middle East could act as a tailwind for the USD. Apart from this, expectations that the European Central Bank (ECB) will cut rates again, amid falling inflation in the Eurozone, appear to limit gains for the EUR/USD pair.

However, spot prices remain on track for modest weekly gains. Moreover, the appearance of some short buying near the horizontal resistance of 1.0950, turned into support, warrants some caution before positioning for deeper losses. Traders are now looking to US macro data – Construction Starts, Housing Permits and the Michigan Preliminary Index of Consumer Sentiment – ​​for near-term opportunities later in the early North American session.