- EUR/USD fades corrective pullback from weekly low, mostly steady.
- Yields stay firmer on cautious optimism surrounding Omicron, DXY eases.
- ECB’s Holzman renew inflation fears, German Factory Orders dropped in October.
- ZEW sentiment figures, Eurozone GDP may entertain traders, risk catalysts are the key.
EUR/USD takes a U-turn from intraday top of 1.1292, retreats to 1.1285 ahead of Tuesday’s European session. The major currency pair initially cheered the US dollar weakness amid a lack of major data/events. However, the recently firmer US Treasury yields seem to have weighed on the quote of late.
The pair’s early Asian run-up could be linked to the market’s reaction to the fresh inflation fears cited by the European Central Bank (ECB) officials after multiple policymakers attempt to defend easy money flows. Austrian central bank governor and European Central Bank governing council member Robert Holzmann said on Monday that it was very unlikely that inflation in the Eurozone would return to or fall below 2.0% in 2022, according to Reuters citing Handelsblatt.
It’s worth noting that the receding fears of the South African covid variant, dubbed as Omicron, also helped the EUR/USD prices to consolidate recent losses earlier. Omicron cases increase in Australia, China and India of late, joining the league of the UK, Europe and other Western leaders. However, an absence of notable virus-led deaths and expectations of finding a cure to the COVID-19 strain seems to keep the sentiment brighter.
On the contrary, a rebound in the US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, joins downbeat German Factory Orders for October, -6.9% m/m versus +1.8% prior, challenge EUR/USD bulls.
Amid these plays, the US Treasury yields and the stock futures keep the week-start rebound but the US Dollar Index (DXY) struggles to pick up.
Moving on, the second reading of the Eurozone Q3 GDP and October’s ZEW sentiment data for the bloc, as well as for Germany, will be crucial for the short-term EUR/USD forecast. Should the scheduled figures match downbeat forecasts, the pair has further south to go.
In addition to the scheduled data, virus updates and inflation headlines, as well as bond moves, will also be important to follow for clear direction.
Technical analysis
In addition to the EUR/USD downside break of a fortnight-old support-turned-resistance, as well as a falling channel formation, a bearish MACD signal also keep sellers hopeful. The current weakness, however, may take a breather around a fortnight-long horizontal zone surrounding 1.1235-30 before directing the EUR/USD bears to the yearly low near 1.1186. Alternatively, the stated channel’s resistance line around 1.1310 guards short-term advances of the EUR/USD pair.