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- Sustained USD buying exerted some pressure on EUR/USD for the third straight day.
- A softer risk tone, rising US bond yields continued lending support to the greenback.
- The downside remains cushioned ahead of the ECB and the US CPI later this week.
The EUR/USD pair edged lower for the third straight day on Tuesday, though it lacked follow-through selling and remained confined in last week's broader trading range. A combination of factors assisted the US dollar to build on its recent bounce from over a one-month low, which, in turn, was seen as a key factor exerting some downward pressure on the major. The initial market optimism led by the easing of COVID-19 restrictions was overshadowed by concerns that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. This continued weighing on investors' sentiment and underpinned the safe-haven greenback, which drew additional support from the latest leg up in the US Treasury bond yields.
In fact, the yield on the benchmark 10-year US government bond shot back above the 3.0% threshold for the first time in nearly four weeks amid worries about persistent inflation. Despite the prevalent USD buying interest, the downside for the EUR/USD pair remains cushioned in the wake of rising bets for imminent interest rate hikes by the European Central Bank (ECB). Hence, the market focus will remain glued to the ECB monetary policy decision on Thursday. This will be followed by the release of the US consumer inflation figures on Friday, which would determine the Fed's policy tightening path and provide a fresh directional impetus to the buck. In the meantime, the EUR/USD pair is more likely to extend the sideways consolidative price moves in the absence of top-tier economic data.
Technical outlook
From a technical perspective, the recent strong rebound from the YTD low stalled near the 50% Fibonacci retracement level of the 1.1185-1.0350 slide. The said barrier, around the 1.0775-1.0780 region, should act as a pivotal point for short-term traders. Some follow-through buying, leading to a subsequent move beyond the 1.0800 mark would be seen as a fresh trigger for bullish traders. The EUR/USD pair might then accelerate the momentum to test the next relevant hurdle near the mid-1.0800s. Bulls might eventually lift spot prices to the 61.8% Fibo. level, around the 1.0880 zone, which if cleared decisively will set the stage for an extension of over a three-week-old uptrend.
On the flip side, last week’s swing low, around the 1.0625 region, now seems to protect the immediate downside ahead of the 1.0600 mark. A convincing break below could prompt some technical selling and darg the EUR/USD pair back towards the 23.6% Fibo. level, around the 1.0550-1.0545 area. This is followed by support near the 1.0500 psychological mark, which if broken would suggest that the corrective bounce has run its course and shirt the bias back in favour of bearish traders. The pair would then turn vulnerable to weaken further below the 1.0400 mark and challenge the YTD low, around mid-1.0300s touched in May.
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