- EUR/USD refreshes intraday low, fades corrective pullback from 2021 bottom.
- US dollar tracks firmer US Treasury yields amid fears over China, US stimulus and debt ceiling.
- Reflation, tapering concerns favor bears ahead of the key PMIs for September.
EUR/USD bulls witness rejection after a two-day run-up during early Tuesday, down 0.18% on a day near 1.1600 heading into the European session. The Euro pair portrays the broad US dollar rebound to recall the bears targeting the yearly low ahead of crucial activity numbers from the bloc, as well as from the US.
The US dollar rebound, the first in the last four days, could be linked to the sour sentiment that recently took clues from China and US politics. That said, the US Dollar Index (DXY), a gauge of the greenback versus the major currencies, gains 0.17% on a day as the bulls poke the 0.9400 threshold by the press time.
While the Evergrande default fears loom, the line of Chinese real estate firms that may roil the financials seems to be longer. Earlier in the day, Bloomberg conveyed the news of Fantasia Holdings Group’s missed debt payment. While global rating giant Fitch downgraded a Beijing-based property developer Sinic afterward.
Also challenging the market sentiment is the indecision over the passage of the US infrastructure spending bill and the debt limit extension amid Republicans’ strong rejection of President Joe Biden’s “all or none” approach. It’s worth noting that US President Biden’s recent readiness to alter the cap of the stimulus is yet to woo the opposition and hence today’s North American session will be interesting for political watchers.
Adding to the risk-off mood could be Japan’s fresh PM Fumio Kishida who hints at joining the US in taming China’s rush for power in Taiwan.
Amid these plays, the US 10-year Treasury yields extend the previous day’s recovery moves to 1.50%, up 1.7 basis points (bps) while stock futures remain sluggish at the latest.
It should be observed that the latest comments from the US Federal Reserve (Fed) and the European Central Bank (ECB) policymakers, namely St. Louis Fed President James Bullard and ECB Vice President Luis de Guindos, keep suggesting the fears of higher inflation. However, the Fed tapering gains more attention and propels the US dollar than the ECB chatters to the Euro.
Given the cautious sentiment, EUR/USD traders will pay close attention to the final reading of September month’s Markit PMIs for short-term direction. Though, the US ISM Services PMI for the stated month, expected 60 versus 61.7, will be watched closely for the hints of Friday’s Nonfarm Payrolls.
Unless breaking convergence of the 50-SMA on a four-hour chart (4H) and a downward sloping trend line from mid-September, near 1.1660, EUR/USD bears stay on the way to the yearly low surrounding 1.1565-60.