EUR/USD pierces 1.1655 resistance as firmer sentiment weighs on USD

EUR/USD takes the bids to cross a key short-term resistance line around 1.1655 heading into Monday’s European session.

The currency major pair cheered US dollar weakness, amid broad risk-on mood, the previous day but the stated resistance line probed the quote’s following advances. Though, the latest drop in the greenback enables the EUR/USD bulls to cross the immediate hurdle ahead of an important week comprising the European Central Bank (ECB) monetary policy meeting and the preliminary readings of the US Q3 GDP.

US Dollar Index (DXY) pressures a three-week low, extending Friday’s losses around 93.50, as the recent softening of the US 10-year Treasury yields join sentiment-positive catalysts from China. Also, hopes that the ECB policymakers will keep their hawkish rhetoric during this week’s monetary policy meeting add to the EUR/USD strength.

That said, the US 10-year Treasury yields drop 1.3 basis points (bps) to 1.642% while the S&P 500 Futures turn positive, poking record top marked on Friday.

Behind the moves could be the headlines suggesting US policymakers’ optimism towards reaching the agreement on the much-awaited infrastructure spending deal. On the same line was news from China’s Evergrande which said it has resumed construction work on 16 cites, including the latest six. The troubled real-estate player paid $83.5 million in interest on a U.S. dollar bond and relieved the market’s stress the last week. Further, the People’s Bank of China’s (PBOC) efforts to safeguard the financial system, recently by a net 190 billion yuan injection, also brighten the market’s mood.

It should be noted, however, that Friday’s comments from Fed Chair Jerome Powell turned out in sync with the rest of the Fed policymakers who favor tapering and challenge the EUR/USD bulls. Also, covid fears in China add to the catalysts underpinning the US Treasury yields. Mi Feng, a spokesman at the National Health Commission said during the weekend, per Reuters, ''There is increasing risk that the outbreak might spread further, helped by ‘seasonal factors’”.

Moving on, German IFO numbers October will precede the US Chicago Fed National Activity Index for September and Dallas Fed Manufacturing Business Index for October to entertain the intraday bulls. Though, major attention will be given to the US Treasury yields ahead of crucial events on Thursday.

Technical analysis

EUR/USD stays firmer above 10-day and 21-day EMAs amid bullish MACD signals, suggesting further advances towards the downward sloping resistance line from September 22, near 1.1655. However, August month’s low around 1.1665 will validate the quote’s additional upside towards the late September’s peak near 1.1755. Meanwhile, the stated EMAs, close to 1.1630-25, challenge the short-term EUR/USD declines ahead of the 1.1600 threshold and the 1.1570 support levels.