• Euro (EUR) rises in risk on trade
  • German ZEW economic sentiment data due
  • US Dollar (USD) under pressure ahead of Janet Yellen’s testimony
  • Expected to support Joe Biden’s $1.9 trillion stimulus package

The Euro US Dollar (EUR/USD) exchange rate is advancing on Tuesday, extending mild gains from the previous session. The pair settled just 8 pips higher on Monday at US$1.2076 at the high of the day. At 09:15 UTC EUR/USD trades +0.3% at US$1.2112.

The Euro is extending gains amid a more upbeat mood in the market following Monday’s lull. German inflation confirmed +0.5% month on month growth in December but -0.3% decline year on year. The data comes after the Bundesbank said that it expects prices in Europe’s largest economy to be clearly positive in January for the first time in half a year.

Looking ahead traders await the European Central Bank monetary policy meeting. The central bank begins the meeting on Wednesday and will deliver its decision on Thursday. Given that the bank increased and extended its bond buying programme in the previous meeting, it is not expected to do so again this month.

Even so there is a good chance that the central bank will paint a gloomy picture as rising covid cases and tighter lockdown restrictions dampen growth prospects and the elevated value of the Euro proves problematic amid already lackluster inflation. There is a good chance that ECB President Christine Lagarde could express additional concerns over the strength of the Euro.

The US Dollar is trading on the back foot in early trade ahead of a testimony by US Treasury Secretary Janet Yellen on Capitol Hill later today.

Former Federal Reserve Chair Janet Yellen is expected to outline the need for President elect Joe-Biden’s proposed $1.9 trillion covid stimulus package. Janet Yellen is also expected to be asked on her stance for the US Dollar. However, the US Dollar is not expected to rally much on any comments supporting a stronger US Dollar given the ultra lose monetary policy.