EUR/USD: Bounce stalls at key hurdle despite the drop in the US yields

EUR/USD is trading in the red at 1.0955 ahead of the London open, having faced rejection near 1.0967 (38.2% Fib Retracement of 1.1110/1.0943) in the Asian trading hours.

The currency pair picked up a bid at lows below 1.09 Monday after weak US manufacturing data bolstered the US recession fears. The currency pair extended the recovery to levels above 1.0950 on Tuesday, courtesy of a weaker-than-expected US ADP Employment data. 

The US 10-year treasury yield fell by three basis points and four basis points on Tuesday and Wednesday, respectively, and hit a low of 1.578% in the Asian session. That was the lowest level since Sept. 9. 

Even so, the pair failed to take out the resistance at 1.0967, possibly due to the decision by the US to impose tariffs on $7.5 billion in European imports beginning Oct. 18. 

The Trump administration announced tariffs Wednesday after it received a green light from the World Trade Organization to impose the tariffs as retaliation for subsidies that the European Union gave to Airbus in its competition with its American rival Boeing.

Focus on US ISM Non-Manufacturing PMI

The data, scheduled for release at 14:0 GMT, is expected to show the pace of expansion in the activity slowed in September. The PMI is forecasted to print at 55.1 versus 56.4 in August. 

A big miss on expectations would bolster the US recession fears, possibly sending EUR/USD higher to 1.10. It is worth noting that the odds of the Federal Reserve (Fed) cutting rates by 25 basis points in October have already risen from 40% to 64% this week. 

However, if the data beats estimates, the EUR/USD pair will likely fall back below 1.09. 

Ahead of the US data, the pair may take cues from the final Eurozone and German Services PMI for September and other second-tier data releases. Also, the US Initial Jobless Claims, due at 12:30 GMT, may influence the US Dollar. 

Technical levels