The EUR/USD pair stalled its Asian recovery mode and fell back into the red zone, with the bears now heading for the test of key support located at 1.1820 levels on the back of resurgent USD demand across the board.

EUR/USD: All eyes on Yellen

The main currency pair reverted to the familiar ranges near 1.1840 region, as the bears fought back control amid a fresh bounce seen in the US dollar against its main competitors, driving the DXY back towards 92.50 levels.

The greenback suffered during the overnight trades, as markets viewed the Fed officials divided on the outlooks on inflation and interest rates, especially after the Chicago Fed President Evans noted that a gradual and cautious approach to policy normalization is appropriate.

Moreover, the funding currency Euro failed to benefit from the risk-off flows triggered by North Korea’s announcement of ‘an Act of War’ by the US, as the setback from the German election continue to weigh negatively on the spot.

The major also seems vulnerable amid divergent monetary policy outlooks between both continents, in the wake of Fed’s hawkish surprise at its Sept monetary policy meeting and ECB President Draghi’s speech delivered a day before.

Draghi said during his testimony that the ECB will keep as much stimulus as the euro-area economy needs when policy makers decide to adjust their EUR 2.3 trillion bond-buying program later this year.

Later today, "Chair Yellen will deliver a speech on the topic of “Inflation, Uncertainty, and Monetary Policy” (26 September, 12:45 EDT). We expect this speech will partly reflect her comments on inflation at the post-FOMC meeting press conference on Wednesday,” Analysts at Nomura noted.

EUR/USD Technical Set-up  

Karen Jones, Analyst at Commerzbank, noted: “EUR/USD has finally eroded the 5 month uptrend at 1.1875. The upmove is starting to weaken. The close below the five month uptrend line has negated the up move and should trigger losses initially to the 1.1662 August low and below here will target the mid-June high at 1.1296 and the more important 1.1110 end of May low. Intraday rallies should struggle circa 1.1927, the 20 day ma.” 

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