EUR: Holds Near 1.1670 Against USD as Rate Moves Offset Each Other - Danske Bank

EUR/USD traded near 1.1670 this week, with a mix of bullish and bearish factors leaving the pair without a clear direction. Danske Bank research team noted that lower US yields and weaker oil prices weighed on the dollar, but declining European rates simultaneously limited the euro's upside potential, with the two effects largely offsetting each other.

**Supportive Factor: Lower US Treasury Yields Provide Support**

Earlier, the US Treasury's increased buyback of longer-dated bonds briefly pushed EUR/USD higher and pulled the 10-year Treasury yield back to relatively low levels. This policy operation weakened the dollar's rate advantage in the short term, providing phased support for the euro. However, according to market reports, the boost from the aforementioned buybacks has gradually faded, with investors' attention shifting back to rising energy prices and inflation rebound risks.

**Upside Resistance: Declining European Rates and Fundamental Constraints**

The euro's further advance faces internal constraints. On one hand, declining European rates pose resistance to the euro from a yield differential perspective. On the other hand, the euro's strength itself is raising concerns among policymakers and businesses—Marinov, currency strategist at Credit Agricole, said further euro strength could be "counterproductive," dragging on the eurozone economy amid already weak exports. The European Central Bank forecasts average inflation of 1.6% next year, notably below the 2% target, partly due to the strong euro lowering imported goods prices. ECB Vice President de Guindos previously stated that if the exchange rate rises above 1.20, "the situation would become much more complicated."

**Technical Picture: Bullish but Watch for Overbought Conditions**

On the daily chart structure, the pair has rebounded from around 1.1350 to the current 1.1669 level, breaking above the consolidation zone near 1.1600, with short-term bullish momentum strengthening. However, the RSI indicator has risen to the **overbought zone** at 72.94, suggesting increased risk of chasing gains in the short term. The pair may face significant resistance around 1.1720 to 1.1730, and high-level consolidation or technical pullback cannot be ruled out.