EUR/USD Outlook: FUNDAMENTAL Infos+Technical Analysis SHORT 🔔

Hopes for a diplomatic solution to the Ukraine crisis lifted EUR/USD to the 1.1100 mark on Wednesday.
Strong rally in the equity markets weighed heavily on the safe-haven USD and remained supportive.
The overnight spike in the US bond yields limited the USD losses and capped the upside for the pair.
Investors also seemed reluctant ahead of the ECB policy meeting and the US CPI report on Thursday.
The EUR/USD pair witnessed an aggressive short-covering move on Wednesday and recorded its steepest daily rise in nearly six years amid hopes for a diplomatic solution to end the war in Ukraine. Turkey's top diplomat Mevlut Cavusoglu announced that Russian Foreign Minister Sergey Lavrov and his Ukrainian counterpart Dmytro Kuleba have agreed to meet on Thursday. This would be the first potential talk between the two officials since Russian troops invaded Ukraine on February 24 and raised expectations that a compromise is possible, providing much-needed relief to investors. This, in turn, triggered a sharp rally in the equity markets, which drove flows away from the safe-haven US dollar and provided strong boost to the major.

The pair rallied to the 1.1100 neighbourhood, though lacked follow-through buying and edged lower during the Asian session on Thursday. Investors remain concerned about the risk of a further escalation in tensions between Russia and the West. In fact, US President Joe Biden on Tuesday imposed an immediate ban on Russian oil and other energy imports. Britain matched the move and said that it would phase out the import of Russian oil by the end of 2022. The European Union (EU) also announced new sanctions against Russian individuals and Belarus banks. The Russian foreign ministry said that the response to the Western sanctions will be sensitive and precise. This, in turn, kept a lid on the latest optimism in the markets, at least for now.

Apart from this, the overnight sharp spike in the US Treasury bond yields helped limit losses for the USD and further collaborated to cap gains for the major. The recent monster gains in commodity prices have been fueling worried of a major inflationary shock amid the rapidly deteriorating global economic outlook and acted as a tailwind for the US bond yields. Investors also seemed reluctant and preferred to wait for the European Central Bank (ECB) meeting later today. Given its geographical proximity, the European economy is anticipated to suffer the most from the spillover effects of the Ukraine crisis. This, however, might do little to force the ECB to change its hawkish stance amid the record-high consumer inflation.

Later during the early North American session, traders will take cues from the US CPI report. This, along with the broader market risk sentiment and the US bond yields, will influence the USD price dynamics. That said, the focus will remain on the incoming geopolitical headlines and developments surrounding the Russia-Ukraine saga. Nevertheless, the stage seems all set for yet another day of volatile price moves for the pair.