EUR/USD drops towards 1.1350 as DXY renews weekly top on firmer T-bond yields
- EUR/USD bears attack weekly bottom surrounding 1.1375, prints biggest daily loss in a fortnight.
- Yields stay firmer around 2.5-year high on hawkish Fedspeak, US inflation.
- ECB’s Lagarde, other risk catalysts also exert downside pressure.
- German HICP data, US Michigan Consumer Sentiment will decorate calendar but risk catalysts are the key.
EUR/USD takes offers to refresh intraday low around 1.1375, also poking weekly bottom during early Friday morning in Europe.
In doing so, the major currency pair prints the heaviest daily fall in over two weeks as the US Dollar Index (DXY) cheers the market’s rush for risk-safety amid strong Treasury yields and challenges to sentiment emanating from Russia, China. Also weighing on the quote are the comments from European Central Bank (ECB) President Christine Lagarde who keeps rejecting rate hike concerns.
That said, the DXY renews weekly top to 96.03 during the latest run-up tracking the firmer US bond coupons.
It’s worth noting that the US 10-year Treasury yields crossed 2.0% for the first time since July 2019 after the US Consumer Price Index (CPI) for January refreshed a four-decade high with a 7.5% YoY figure, versus 7.3% expected and 7.0% prior. The benchmark T-bond yields currently seesaw around 2.035%.
Following that inflation data, St. Louis Fed President James Bullard went a step farther while supporting 100 bps rate hikes by July and for the balance sheet reduction to start in the second quarter, which in turn strengthened the US Treasury yields. On the contrary, Federal Reserve Bank of Richmond President Thomas Barkin tried to tame the bulls while saying that he would have to be convinced of a 'screaming need' for a 50 bps hike.
ECB’s Lagarde also propelled EUR/USD prices while saying, “Raising the European Central Bank's main interest rate now would not bring down record-high eurozone inflation and only hurt the economy.”
Elsewhere, US President Joe Biden confirmed the earlier notice from the US Statement Department to all citizens to leave Ukraine “right now” during an interview with NBC News. On the same line were fears of US-North Korea tussles as the hermit kingdom refrains from the global push towards dumping the missile tests.
To sum up, EUR/USD bears are likely to keep reins with eyes on the German Harmonized Index of Consumer Price (HICP) for January, expected to match the first estimations of 5.1% YoY, for immediate direction. Following that, the preliminary readings of the US Michigan Consumer Sentiment Index for February, expected 67.5 versus 67.2 prior, will be important data. Though, major attention will be given to Fedspeak and yields.
Technical analysis
A clear pullback from a three-month-old horizontal resistance near 1.1485 direct EUR/USD bears toward the 50-DMA level surrounding 1.1330.