EUR/USD: Recovery appears capped by 21DMA at 1.0605 ahead of Fed Minutes

EUR/USD is attempting a minor recovery toward 1.0600 early Wednesday, as the US Dollar reverses its recovery amid the return of risk flows.

The US Dollar drops in tandem with the US Treasury yields, as investors reposition themselves ahead of the US ISM Manufacturing PMI and Fed Minutes due later this Wednesday.

The major also remains underpinned by the recent hawkish comments from the European Central Bank (ECB) policymakers. ECB policymaker Joachim Nagel said on Monday that the central bank needs to take further action to curb inflation expectations. Meanwhile, ECB official Martin Kazaks said that they will have significant rate increases at the February and March meetings.

The EUR/USD pair tumbled on Tuesday after the US Dollar capitalized on risk-off flows while softer German inflation data smashed the euro area peripheral yields, sending the Euro sharply lower.

EUR/USD: Technical outlook

EUR/USD yielded a daily closing below the rising trendline support, then at 1.0630, validating a symmetrical triangle breakdown.

Therefore, risks remain skewed to the downside for the pair, despite the latest uptick. If the rebound gathers traction, EUR/USD needs to recapture the 21-Daily Moving Average (DMA) support-turned-resistance at 1.0605.  Bulls will then aim for the triangle support now resistance at 1.0635 on the road to recovery.

The 14-day Relative Strength Index (RSI) has recovered slightly while defending the 50.00 level, backing the latest leg up in the main currency pair.

However, if sellers manage to fight back control, the pair will go for a retest of the previous day’s low at 1.0519. Ahead of that, the 1.0550 psychological level could come to the rescue of buyers.

The triangle breakdown keeps the downside open toward the 1.0420 pattern target over the coming weeks.

EUR/USD: Daily chart

EUR/USD: Additional technical levels to watch