EUR/USD Analysis: Remains at the mercy of USD price dynamics, focus on Lagarde's speech/US CPI

The EUR/USD pair regained positive traction during the second half of the trading action on Tuesday and reversed the previous session's losses to near three-week lows. A turnaround in the US Treasury bond yields prompted some fresh US dollar selling, which, in turn, was seen as a key factor that provided a modest lift to the major. It is worth recalling that the Democratic sweep in the US Senate runoff elections in the state of Georgia sparked a bond-market selloff and pushed the yield on the benchmark 10-year US government bond to ten-month highs on Tuesday. The strong rally was fueled by expectations that President-elect Joe Biden would push for a multi-trillion-dollar stimulus package.

However, strong demand at a $38 billion 10-year auction and dovish comments from Fed officials triggered a sharp pullback in the US bond yields. Policymakers toned down the talk of tapering the asset purchase program and reiterated that the monetary policy is going to stay accommodative. Apart from this, the underlying bullish sentiment in the financial markets further weighed on the safe-haven greenback and drove the pair higher amid absent relevant market moving economic releases. The pair climbed back above the 1.2200 mark and finally settled near the top end of its daily trading range.

The USD remained on the defensive through the Asian session on Wednesday and pushed the pair to fresh weekly tops, though lacked any strong follow-through buying. Market participants now look forward to a scheduled speech by the ECB President Christine Lagarde for a fresh impetus. Investors will also take cues from the US economic docket, highlighting the release of the latest consumer inflation figures. This, along with the broader market risk sentiment and the US bond yields, will influence the USD price dynamics and produce some meaningful trading opportunities around the major.

Short-term technical outlook

From a technical perspective, the pair managed to rebound from support near the 1.2130-25 congestion zone. This should now act as a key pivotal point for short-term traders and help determine the pair's near-term trajectory. A convincing break below would turn the pair vulnerable to break below the 1.2100 mark and accelerate the corrective slide towards the 1.2060-40 region. The latter coincides with the 38.2% Fibonacci level of the 1.1603-1.2350 positive move, below which the pair seems all set to prolong its recent corrective slide.

On the flip side, immediate resistance is pegged near the 1.2245-50 region. Some follow-through buying will set the stage for additional gains and pushed the pair back above the 1.2300 mark. The momentum could further get extended towards the 1.2325-30 horizontal resistance before bulls eventually aim to challenge multi-year tops, around mid-1.2300s.