The EUR/USD pair suffered another day of sharp losses on Tuesday and tumbled to fresh yearly lows amid a follow-through US Dollar upsurge. Rallying US Treasury bond yields, with the 10-year note shooting above the psychologically important 3% level to hit its highest level since 2011, was seen as one of the key factors behind the greenback's strong move on Tuesday. Traders paid little attention to the mixed US economic data, instead followed bond yield dynamics.
The release of better-than-expected Empire State manufacturing index and a second straight month of growth in the US monthly retail sales suggested that the economy is picking up pace after a slow start to the year. Improving economic indicators revived expectations that the Fed might need to raise interest rates more aggressively and remained supportive of the prevailing bullish sentiment surrounding the buck.
The pair now seems to have entered a bearish consolidation phase and was seen oscillating in 15-20 pips narrow trading range through the Asian session on Wednesday. Moving ahead, today's release of final German/composite EZ CPI print, along with the ECB President Mario Draghi's scheduled speech would now be looked upon for some immediate respite for the EUR bulls. From the US, housing market data and speech by Atlanta Fed President Raphael Bostic might influence the US price-actions and eventually produce some short-term trading opportunities.
From a technical perspective, this week’s failure near the key 1.20 psychological mark and a subsequent sharp slide clearly indicate that the near-term bearish trajectory might still be far from over. Hence, the pair seems more likely to break below the 1.1800 handle and head towards testing its next major support near the 1.1740-30 region, representing 38.2% Fibonacci retracement level of the pair’s multi-year decline from May 2014 highs (1.3991) to lows touched in Jan. 2017 (1.0341).
On the flip side, recovery attempts back above mid-1.1800s might now confront fresh supply near the 1.1900 handle and any subsequent up-move seems more likely to be capped near the 1.1935-40 region.
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