EUR/USD snaps two-day uptrend below 1.2200 on USD rebound, EU/German data eyed

• EUR/USD holds lower ground near intraday low, drops for the first time in three days.
• Downbeat US Treasury yields add to the US dollar weakness amid sluggish markets.
• Covid, stimulus news battle mixed concerns over inflation, China to portray cautious optimism.
• Eurozone GDP, German ZEW figures in the spotlight, Thursday becomes the key day.

EUR/USD marks the first daily drop in three as it edges lower around 1.2180, down 0.08% intraday heading into Tuesday’s European session. Receding fears of inflation and chatters over the Fed’s next moves, coupled with covid and China headlines, exert downside pressure on the major currency pair ahead of important statistics from Eurozone and Germany.

With the latest hit of the US jobs reports dragging inflation expectations to a six-week low, market sentiment improves and drags the US 10-year Treasury yields further towards the south of 1.60%. The same put a bid under the US dollar ahead of the headlines inflation data on Thursday. Also on the risk-positive side are the talks surrounding US President Joe Biden’s infrastructure spending plan and removing of the covid-led activity restrictions in Canada and the UK.

That said, the US dollar index (DXY) replicates the EUR/USD moves while consolidating losses from Friday, up 0.08% around 90.06 by the press time.

It’s worth noting that the EU-UK tussles over Brexit ahead of the US President’s Europe visit and the jitters between the West and China put a safe-haven bid under the greenback and adds to the EUR/USD strength. Recently, a US report cited by the Wall Street Journal (WSJ) concluded that the covid virus may have leaked from China’s Wuhan Lab. In retaliation, China progresses towards a law that questions the American sanctions.

Against this backdrop, the US stock futures print mild gains around the monthly high while commodities are also on the front-foot amid upbeat sentiment.

Looking forward, final readings of Eurozone’s Q1 2021 GDP, expected to confirm -0.6% QoQ and -1.8% YoY figures, will join Germany’s ZEW sentiment figures for June to entertain EUR/USD traders ahead of the US Good and Services Trade Balance for April. In addition to the data, which is likely to keep the EUR/USD on the back foot, risk appetite-related headlines will also be crucial for near-term trade direction. It’s worth noting that the pair buyers may remain cautious ahead of Thursday’s ECB and US Consumer Price Index (CPI) data.

Technical analysis

EUR/USD portrays a bullish flag formation on the four-hour chart. The pair recently eased from a 100-SMA level of 1.2200, suggesting further pullback towards a two-day-old support line near 1.2165 and an upward sloping trend line from early May, close to 1.2115. Alternatively, a clear upside break of 100-SMA, around 1.2200, propels the quote to confirm the bullish chart formation with a clear run-up beyond the 1.2216 key hurdle. Following that, the previous month’s top near 1.2266 will offer an intermediate halt during the rally targeting the yearly peak of 1.2349.