EUR/USD rebound teases 1.1300 on softer yields, indecisive markets

• EUR/USD rises the most in a week, off late November bottom.
• Yields weigh amid geopolitical, financial chatters but Omicron, stimulus keep markets hopeful.
• ECB seems divided over easy money after mixed data, absence of Fedspeak adds to the bullish bias.
• US inflation becomes the key, risk catalysts can entertain bulls meanwhile.

EUR/USD grinds higher around the intraday top of 1.1293, up 0.20% on a day, heading into Wednesday’s European session. The major currency pair benefits from the US dollar pullback, underpinned by the softer Treasury yields amid a lack of major catalysts.

The US Dollar Index (DXY) snaps a five-day uptrend, down 0.14% intraday around 96.17 by the press time. That said, the US 10-year Treasury yields dropped 1.7 basis points (bps) to 1.463% at the latest while retreating from a weekly high.

An absence of Fed rate hike signals, due to the generally observed silent period before the next week’s Federal Open Market Committee (FOMC) and Friday’s US Consumer Price Index (CPI) seems to weigh on the US Treasury yields of late, which in turn weigh on the US dollar. Also exerting downside pressure on the pair is the market’s risk-on mood that reduces the greenback’s safe-haven demand.

The receding fears of the South African coronavirus variant, dubbed as Omicron, join policymakers’ readiness to safeguard respective economies of China and Japan to favor risk appetite. On the other hand, geopolitical tensions between the Washington and Kremlin, as well as the US-China tussles, join fears of Chinese real-estate companies’ default to probe the optimists and challenge EUR/USD buyers.

Additionally supporting the EUR/USD bulls could be the European Central Bank (ECB) policymakers’ indecision over the next moves. ECB governing council member Madis Muller said on Tuesday that it is not obvious that the bank should be adding to its Asset Purchase Programme purchase volumes beyond March in light of high inflation and the uncertain outlook. On the same line were comments from Slovak central bank Governor and European Central Bank governing council member Peter Kazimir  who said, per Reuters, “We should be wary of premature tightening.”

It’s worth noting that the policymaker from Germany and recently mixed data challenge the ECB doves hence raising doubts on the EUR/USD run-up.

Moving on, a lack of major data/events highlights risk catalysts as the key for the near-term trade direction. Important among them are headlines from China and Russia, as well as concerning Omicron.

Technical analysis

EUR/USD rebound needs validation from the 10-DMA level surrounding the 1.1300 to aim for a five-week-old resistance line near 1.1380. In absence of this, the pair remains directed towards the 1.1230 and the yearly low of 1.1186.