EUR/USD slides towards 1.0580 support, focus on US data, Treasury bond yields

EUR/USD prints mild losses around 1.0600 as it welcomes bears after a two-day absence heading into Wednesday’s European session.

The major currency pair dropped during the last two days as the US Dollar failed to cheer firmer Treasury yields, amid receding fears of the recession. However, the quote’s latest weakness could be linked to the market’s consolidation of weekly moves after the volatile Tuesday, mainly due to the Bank of Japan (BOJ)-led policy tweak.

That said, the US Dollar Index (DXY) picks up bids to pare recent losses around 104.10, snapping a two-day downtrend with mild gains, as US Treasury yields remain firmer despite the overall market consolidation.

Previously, the DXY dropped the most in a week the previous day as the greenback traders feared less Japanese bond-buying of the US Treasury bonds due to the BOJ action. Japan is the biggest holder of the US Treasury bonds and the latest move allows Tokyo to put more funds into the nation than letting it flow outside. That said, the 10-year counterpart rose more than the two-year ones and hence reduced the yield curve inversion that suggests the odds of the recession.

On other hand, hopes for China’s more investment, due to the World Bank’s cutting of growth forecasts for the dragon nation and the policymakers’ readiness to battle the recession fears, favor the market sentiment. On the same line could be the US Senate’s advancement of the $1.66 trillion government spending bill, as well as Japan’s upbeat economic forecasts.

It should be observed that the US Treasury bond yields remain firmer even as the stocks and other riskier assets trim recent gains. The reason could be linked to the cautious mood ahead of today’s US Conference Board (CB) Consumer Confidence figures for December, expected at 101.00 versus 100.00 prior. Ahead of that, Germany’s GfK Consumer Confidence Survey for January, expected to improve to -38 from -40.2 could entertain the EUR/USD pair traders.

Overall, EUR/USD consolidates recent gains but is far from bear’s reach as the European Central Bank (ECB) appears comparatively more hawkish that the US Federal Reserve.

Technical analysis

EUR/USD retreats from the two-week-old previous support line, now resistance around 1.0645. The pullback moves, however, need to refresh the weekly low surrounding 1.0580 to please sellers.