EUR/USD: The US Dollar taking a breath to target stronger levels as the Treasury yields rise again

  • The EUR/USD pair rebounds from the 1.1763 level amid some profit-taking on the long USD trade.
  • The US Dollar Indexcorercted slightly while the benchmark US Treasury yields rose to new highs of 3.093%.

The EUR/USD pair is trading at around 1.17800 down 0.45% on Wednesday as both the US dollar and the US Treasury yields are correcting their recent strong up move.

The EUR/USD fell to a new 2018 low in the American session before consolidating close to the 1.1800 handle. With the US 10-year Treasury yield jumping up to a new high of 3.093%, the EUR/USD fell back below 1.1800 area. 

The US Dollar Index, which measures the greenback relative to a basket of currencies broke to new multi-week highs on Wednesday and reached 93.63 to then pull back to the 93.40 area in the first part of the US session. 

On Tuesday, the 10-year US Treasury yield reached levels not seen since summer 2011 as investors are turning to the US Dollar with the Federal Reserve bank expected to follow through with policy normalization. The risk-off sentiment is also pushing US Dollar higher.

"Investors may be tip-toeing back into safe assets with several market indicators flagging a risk-off posture. The gold-silver ratio bottomed on the 11th, despite the fall in the price of gold, alerting us to a possible watershed shift in market perceptions. Another proxy for risk appetite, the Dow Jones Utilities Average, is shaping a potential double-bottom. Copper price, known as a barometer of economic health, reversed direction and is touching previous resistance now converted into support. And yet another way to gauge the extent of market risk-taking is looking at junk and corporate bonds, which have its wings clipped again" Gonçalo Moreira, technical analyst at FXStreet pointed out on the market risk on/off sentiment on Wednesday. 

Earlier in Europe, the inflation in April in the Eurozone and Germany matched analysts’ expectations giving the euro a very moderate push higher but the move was soon erased by USD bulls. 

EUR/USD 4-hour chart 

The medium-term trend is bearish and the next support is the 1.1763 low of the day followed by 1.1700 psychological level. Traders will likely fight over the current psychological level of 1.1800. To the upside, bulls will likely meet resistance at the 1.1850 supply level in Europe and finally the 1.1900 hanlde. The EUR/USD is trading below its 50, 100 and 200-period simple moving averages which suggests a strong downward momentum.

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