EUR/USD floats above 1.1300 as USD ignores firmer yields, German Inflation, US PMI eyed

  • EUR/USD keeps rebound from weekly low with a choppy range.
  • US Treasury yields rise to April 2021 levels, German Bund coupons refresh two-month high.
  • Covid woes escalate and so do Fed rate-hike expectations but ECB hawks join pre-data cautious to test pair traders.

EUR/USD treads water around 1.1315, irrespective of the broad risk-off mood during early Thursday.

The major currency pair rose the most in a week the previous day, despite posting losses post-Fed Minutes, amid hawkish comments from the ECB policymaker Kazaks. The recent indecision of the EUR/USD pair traders could be linked to the cautious sentiment ahead of the key data, as well as firmer yields in Germany and the US.

Latvian central bank governor and ECB governing council member Martins Kazaks said on Wednesday that the ECB is ready to raise rates and cut stimulus if needed.

On the other hand, the Federal Open Market Committee (FOMC) Meeting Minutes conveyed hawkish bias of the policymakers, suggesting a faster rate-hike and plans to discuss balance-sheet normalization. Following the Minutes, the US bond yields rally and the Fed interest rate futures point at the 80% chance of a hike in March 2022.

Given the strong US ADP Employment Change for December, 804K versus 400K expected, statements from the Fed Minutes like, “conditions for a rate hike could be met relatively soon if the recent pace of labor market improvements continues” also propelled the US bond coupons.

It should be observed that the recent doubling of the covid infections and economic concerns surrounding China also add to the risk-off mood, which in turn propel US Treasury yields and test the EUR/USD buyers.

Amid these plays, the US 10-year Treasury yields jumped to the highest level since April 2021 by the end of Wednesday’s North American session and drowned the Wall Street benchmark. Recently, the US 10-year bond yields refresh a nine-month high of around 1.71%, which in turn weighed on the S&P 500 Futures.

Moving on, Germany’s preliminary readings of Harmonized Index of Consumer Prices (HICP) for December, expected 5.7% YoY versus 6.0% prior, will offer immediate direction to the EUR/USD prices. Should the inflation figures keep rising the ECB hawks may propel the quote.

Following that, the monthly prints of the US Good Trade Balance and ISM Services PMI for December, as well as weekly US Jobless Claims, will entertain short-term market players. However, Friday’s US Nonfarm Payrolls (NFP) is the key.

Read: US December Nonfarm Payrolls Preview: Analyzing gold’s reaction to NFP surprises

Technical analysis

As the MACD line teases a bear-cross to the signal line, coupled with the steady RSI, EUR/USD is likely to remain pressured. However, a clear downside break of the 21-DMA level of 1.1300 becomes necessary for the bears to aim for an ascending support line stretched from mid-December 2021, around 1.1280 by the press time.

Alternatively, sustained trading beyond the 1.1300 threshold will direct the EUR/USD prices towards the 50-DMA level surrounding 1.1360.

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