EUR/USD teases 2021 low above 1.1200 on higher yields, PMIs eyed

EUR/USD remains pressured around the yearly low near 1.1230, recently easing ahead of Tuesday’s European session. The currency major pair dropped during the last two consecutive days to refresh the 16-month low as firmer US Treasury yields underpinned the US Dollar Index (DXY) strength.

US 10-year bond coupon jumped the most in a week the previous day as US President Joe Biden nominates Jerome Powell for another term as the Federal Reserve (Fed) Chair while also proposing Richard Clarida’s name for Vice-Chairman’s post. Given the recently hawkish expectations from Powell, Biden’s nomination propelled the Fed rate hike call and enabled the Treasury yields to reverse the previous week’s loss in a single before hovering in Asia amid Japan’s off.

Atlanta Federal Reserve President Raphael Bostic and US Treasury Secretary Janet Yellen praised Biden's decision while flashing mixed signals over the Fed's next moves and inflation. However, they both failed to impress markets with an absence of new comments. While Fed’s Bostic highlighted faster taper and covid economy, Yellen mentioned during the Bloomberg interview that price pressures subside as life normalizes in 2022.

Also exerting downside pressure on the EUR/USD are the recently escalating COVID-19 woes in the bloc. “Austria became on Monday the first country in western Europe to reimpose lockdown since vaccines were rolled out, shutting non-essential shops, bars and cafes as surging caseloads raised the specter of a second straight winter in deep freeze for the continent,” said Reuters. The news also quotes the outgoing German Chancellor Angela Merkel as saying, “We are in a highly dramatic situation. What is in place now is not sufficient.”

Furthermore, the European Central Bank (ECB) policymakers’ dovish comments and the market’s firmer belief that the Fed will precede the regional central bank as far as the rate hike is concerned also weigh on the EUR/USD prices. Recently, ECB’s Governing Council members, namely Martins Kazaks and François Villeroy de Galhau flashed mixed signals over ending the Pandemic Emergency Purchase Programme (PEPP).

Amid these plays, the US 10-year Treasury yields hover around 1.627% whereas stock futures in the US and Europe remain lackluster at the latest. Further, the US Dollar Index (DXY) seesaw around a 16-week high flashed earlier in Asia.

Moving on, likely easy PMI figures from Germany and Eurozone may help the EUR/USD bears to keep reins ahead of the key US PMI data. Should Markit PMI numbers confirm inflation fears via activity numbers, the major pair will have a further downside to track.

Technical analysis

While oversold RSI conditions hint at a corrective pullback towards a two-week-old resistance line near 1.1320, EUR/USD will be vulnerable to test June 2020 low near 1.1170 on the downside break of the 1.1200 threshold.