EUR/USD bears attack 1.1400 during three-day downtrend amid strong yields

EUR/USD buyers face rejection during early Tuesday morning in Asia as the quote tracks firmer US Treasury yields to test the 1.1385 level, currently down 0.08% around 1.1400.

In doing so, the major currency pair refreshes daily/weekly low while portraying a three-day downtrend as the US Dollar Index (DXY) rises for the third consecutive day.

That said, the DXY prints 0.14% daily gains around 95.36 as US bond yields refresh multi-day tops. It’s worth noting that the US 10-year and 5-year Treasury yields refresh two-year highs while the 2-year bond coupon jumps to the February 2020 levels at the latest. Also portraying the risk-off mood is the S&P 500 Futures drop,  0.45% by the press time.

While tracing the strong US Treasury yields, the market’s indecision over the US Federal Reserve’s (Fed) next moves, as well as uncertainty over Omicron, could be held responsible. Friday’s hawkish comments from Federal Reserve Bank of San Francisco President Mary Daly and New York Fed President John Williams are the major drivers for the firmer US bond yields.

Also fueling the yields are record high virus-led deaths in Australia and Japan’s readiness to declare quasi-emergency in Tokyo and other prefectures due to recent jump in the covid cases. Furthermore, risk-negative headlines from Russia, signaling intensifying conditions with Ukraine, also propel the US Treasury yields.

It should be noted, however, that hawkish European money market bets for the 20 basis points (bps) of ECB hike battle recently-softer US consumer-centric data to test the EUR/USD bears. However, ECB’s Lagarde sounds less hawkish than her Fed counterpart in the latest speech, which in turn keeps the pair sellers hopeful ahead of next week’s Federal Open Market Committee (FOMC) meeting.

In addition to the next week’s FOMC, US NY Empire State Manufacturing Index for January and NAHB Housing Market Index will be on the US calendar. Before that, ZEW sentiment numbers for Germany and Eurozone for January will be crucial to watch for immediate directions.

Technical analysis

Although failures to cross the 100-day EMA surrounding 1.1480 restricts the short-term upside of the EUR/USD prices, the 50-day EMA level of 1.1380 limits the pair’s immediate downside.

It’s worth noting that the EUR/USD weakness past 1.1380 will direct the quote towards a two-month-old support line near 1.1300, which holds the key to further south-run to 2021 bottom near 1.1185.