EUR/USD looks to regain 1.1400 on softer yields, Eurozone GDP, US Retail Sales eyed
- EUR/USD consolidates losses around 16-month low, recently grinding higher.
- Yields soften as ECB, Fed officials push back rate hike concerns ahead of key data releases.
- DXY tracks bond coupons to ease from 16-month top.
- US stimulus, XI-Biden talks improve market sentiment, strengthen corrective pullback.
EUR/USD struggles to extend the rebound from a 16-month low heading into Tuesday’s European session. That said, the quote dropped to the fresh low since July 2020 the previous day before bouncing off 1.1359 during early Asia.
Although pullback in the US Treasury yields seems to have underpinned the EUR/USD rebound, cautious sentiment ahead of important statistics from the Eurozone and the US challenges the recovery moves.
The US 10-year Treasury yields drop two basis points (bps) to 1.60% after rising to a three-week top on Monday. The softer bond coupons weigh on the US Dollar Index (DXY) down 0.10% around 95.43, following the run-up to the highest since late 2020.
While tracing the pullback in the yields, comments from the European Central Bank (ECB) and the US Federal Reserve (Fed) officials could well be linked. That said, ECB President Christine Lagarde not only ruled out rate hikes until 2022 but also cited the negative impacts of monetary policy tightening the previous day. On the other hand, the Richmond Federal Reserve Bank President Thomas Barkin cited the need for a “wait and see” approach to tame the inflation whereas the President of the Federal Reserve Bank of Minneapolis Neel Kashkari said that the FOMC shouldn’t overreact to temporary factors.
Also favoring the EUR/USD buyers is the market’s optimism concerning the Sino-American relations following the An absence of negative comments during the introductory talks between US President Joe Biden and his Chinese counterpart Xi Jinping.
It should, however, be noted that the firmer prints of the US Empire State Manufacturing Index and a 31-year high US inflation keep EUR/USD sellers hopeful. Also, fears that the latest worsening of the covid conditions in the bloc will overturn hopes of economic recovery, even if the Eurozone Q3 GDP rises past 2.2% QoQ forecasts, test the major pair buyers.
Read: US Retail Sales Preview: Win-win for the dollar? Three scenarios, only one dollar-negative
Technical analysis
Unless bounding back beyond June 2020 peak near 1.1425, EUR/USD remains vulnerable to test late 2019 high surrounding 1.1240.