- EUR/USD stays pressured around early April levels after the heaviest weekly fall in three months.
- US dollar shrugs off downbeat Treasury yields as rate hike chatters stay firm.
- ECB policymakers remain divided over PEPP extension, President Lagarde eyed.
- US Chicago Fed National Activity Index, Fedspeak also become the key.
EUR/USD fails to keep the early Asian corrective pullback as it refreshes intraday low with 1.1850 heading into Monday’s European session. The currency major pair initially bounced off the lowest since April 06 before reversing from 1.1876 as the US dollar regains upside momentum.
In doing so, the greenback ignores the US Treasury yields, amid a risk-off mood. The US 10-year Treasury yield drops six basis points (bps) to 1.389%, the lowest in four months whereas the 30-year bond yield extends the previous two-day south-run to the mid-February lows, near 1.96% by the press time.
While the US Treasury yields seem to bear the burden of declining inflation expectations, the US dollar index (DXY) remains on the front foot around early April levels after the heaviest weekly jump in three months.
Behind the moves could be the escalating fears of the US Federal Reserve’s rate action and uncertainty over US President Joe Biden’s infrastructure and spending plan. After the hawkish Federal Open Market Committee (FOMC), St. Louis Federal Reserve (Fed) President James Bullard forecasts Core PCE at 3.0% for 2021 and 2.5% for 2022 while backing the tapering to start in next year. Although Bullard isn’t a voting member, his comments echo the FOMC dot-plot and strengthen the rate-hike woes. On the other hand, Reuters came out with the weekend update over infrastructure spending talks in the US Senate while signaling that the plan, “has been gaining support in the U.S. Senate, but disputes continued on Sunday over how it should be funded.”
Also putting a safe-haven bid under the US dollar is the fear of the Delta variant of the covid and Brexit. Amid these plays, stock futures are down and the Asia-Pacific shares take the offers by the press time.
It’s worth noted that the receding chatters over the ECB’s rate hike and monetary policy adjustments, backed by the latest comments from President Christine Lagarde, could also be linked to the EUR/USD pair’s recent losses.
Moving on, comments from the ECB’s Lagarde will be closely observed for fresh impetus as the bloc’s central banker may drop hints for future monetary policy actions. Also important will be Chicago National Fed Activity Index for May, prior 0.24, as well as New York Fed President John C. Williams’ speech. As Fed’s Williams is the voting FOMC member and has favored the need for inaction, his shift towards the hawkish mood, if at all it is, will be exert additional downside pressure on the EUR/USD prices.
Technical analysis
A clear downside below the 1.2000-1990 area comprising 200-day SMA and multiple levels marked since early March, directs EUR/USD sellers to March 09 low of 1.1835 ahead of the 1.1800 threshold and an ascending support line from November 2020 close to 1.1760.
