EUR/USD Analysis: Oscillates between pivotal Fibo. levels ahead of Eurozone/US PMIs

The EUR/USD pair struggled to capitalize on its modest intraday uptick and once again met with some fresh supply near the 1.1665-70 region on Thursday. The downtick was sponsored by a pickup in demand for the US dollar, which drew some support from the cautious market mood. Worries about contagion from China Evergrande's debt crisis resurfaced after the heavily indebted developer was forced to abandon proposed asset disposal. The development could result in a formal default when the grace period on one of its dollar bonds expires on Friday.

Apart from this, a fresh leg up in the US Treasury bond yields turned out to be another factor that underpinned the greenback. In fact, the yield on the benchmark 10-year US government bond rose to 1.683%, or the highest level since May 13 amid expectations for an early policy tightening by the Fed. Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The speculations were reinforced by comments from Fed Governor Christopher Waller, saying that the US central bank may have to act faster if inflation remains too high.

The greenback was further boosted by better than expected US macro releases – Weekly Initial Jobless Claims and housing market data. The number of Americans filing new claims for unemployment-related benefits dropped to 290K, or a 19-month low during the week ended October 15 and pointed to a tightening labour market. Separately, the Philly Fed Manufacturing Index fell to 23.8 in October from 30.7 previous, though was offset by a surge in Existing Home Sales to an eight-month high in September. The data remained supportive of the bid tone surrounding the greenback and dragged the pair to the overnight swing lows.

The overnight downfall, however, lacked any follow-through amid a subdued USD price action during the Asian session on Friday. Investors also seemed reluctant to place aggressive bets, rather preferred to wait for the release of flash Eurozone/US PMI prints. The data will draw plenty of attention on the last day of the week and infuse some volatility around the major. Apart from this, the US bond yields and the broader market risk sentiment, will influence the USD price dynamics and further allow traders to grab some short-term opportunities.

Technical outlook

From a technical perspective, the recent recovery move from YTD lows, so far, has been capped near a resistance marked by the 38.2% Fibonacci level of the 1.1909-1.1525 downfall. Moreover, technical indicators on the daily chart – though have been recovering from the bearish territory – are yet to confirm a positive bias. This makes it prudent to wait for a strong follow-through buying beyond the mentioned barrier before positioning for any further appreciating move.

That said, any subsequent move up might confront a stiff resistance near the 1.1700 confluence region, comprising of 50-day SMA and the 50% Fibo. level. A sustained strength beyond will be seen as a fresh trigger for bullish traders and pus the pair towards the 61.8% Fibo. level, around the 1.1765 region. The momentum could further get extended and allow bulls to aim back to reclaim the 1.1800 round-figure mark.

On the flip side, the 23.6% Fibo. level, around the 1.1620 region, now seems to have emerged as immediate support. A convincing breakthrough, leading to a subsequent slide below the 1.1600 mark, will negate any near-term positive bias. The pair might then turn vulnerable to slide back towards challenging YTD lows, around the 1.1525 area. Some follow-through selling below the key 1.1500 psychological mark will set the stage for the resumption of the recent downtrend from September monthly swing highs.