EUR/USD reverses early losses, focus on bond yields

While EUR/USD has reversed higher from significant support, more substantial gains will likely remain elusive if the Eurozone bond yields extend Tuesday's decline. 

Sellers rejected at 1.1757

The pair is currently trading at 1.1780, having defended the daily chart channel support at 1.1757 during the Asian trading hours. 

On Tuesday, the shared currency fell by over 0.30% as expectations of dovish messages from the European Central Bank (ECB) and risk aversion in stock markets boosted Eurozone government bonds, pushing yields lower. 

The 10-year German bond yield fell by five basis points to -0.51% on Tuesday, and its Italian counterpart declined by three basis points to 1.03%.

The yields are likely to remain under pressure on Wednesday as Asian stocks are flashing red, and oil is extending Tuesday's 6% decline. In other words, markets are likely to remain risk-averse. 

Also, bond markets are likely to continue expectations of supportive messages from the ECB on Thursday. The markets expect the central bank to signal readiness to do more as inflation expectations have declined with the euro's recent strength. 

All in all, the single currency may have a tough time holding on to gains seen at press time. A violation of support at 1.1757 would imply bearish reversal, as discussed early Wednesday. 

Technical levels