EUR/USD: Off two-month highs as US yields recover, focus on risk sentiment

EUR/USD has pulled back from two-month highs, possibly tracking the recovery in the US treasury yields.

The pair is currently trading at 1.1160, having hit high of 1.1214 on Tuesday. That was the highest level since Jan. 2.

Meanwhile, the 10-year US treasury note is trading at 0.986%, representing a seven basis point gain from the record low of 0.916% reached Tuesday. The two-year yield has also recovered to 0.683% from 0.613%. 

Yields had tanked during Tuesday'sNorth American trading hours, sending the US dollar lower across the board in response to the decision by the US Federal Reserve (Fed) to cut rates by 50 basis points.

The emergency rate cut delivered to contain the negative impact of coronavirus on the economy initially had a positive impact on equities. The sentiment, however, turned bearish and the US markets ended the day in the red as investors took the rate cut as a sign of panic. 

Focus on equities

Markets have treated the EUR as a haven currency throughout the recent bout of coronavirus-led risk aversion. This is evident from EUR/USD's near 90-degree surge
from 1.0788 to 1.12 seen in the last eight trading days. 

So, if the risk sentiment improves, the bid tone around the single currency will likely weaken, allowing a notable pullback in EUR/USD. At press time, futures on the S&P 500 are reporting a 1.2% gain. 
 
On the data front, German and Eurozone retail sales and final German and Eurozone PMI readings will be eyed by traders. Across the pond, the US ISM non-manufacturing (Feb) will take the center stage. 

Technical levels