EUR/USD teases yearly bottom near 1.1420 amid reflation woes

EUR/USD treads water around 1.1475, after refreshing the multi-day-old trough heading into Thursday’s European session.

The major currency pair witnessed a heavy blow due to the 31-year high US inflation but bank holiday in America restricts the pair’s moves of late. On the same line could be the headlines concerning China’s struggling real-estate player Evergrande and the Fed policymakers’ attempt to defend the easy-money settings.

The US Consumer Price Index (CPI) jumped to a three-decade high of 6.2% YoY and bolstered Fed rate hike expectations the previous day. The monetary policy views propelled the US Treasury yields to mark the heaviest rise in seven weeks, as well as fuelled the US Dollar Index (DXY).

Following the US CPI release, Patrick Timothy Harker and Mary C Daly, respective Presidents of the Federal Reserve Bank of Philadelphia and San Fransisco, tried to defend the Fed doves. Mr. Harker highlighted the possibilities of a rate hike even while tapering is on whereas Fed’s Daly said, per Reuters, that it would be premature to change the calculation on raising rates.

Elsewhere, news that China’s Evergrande made interest payment to the tune of $148 million on Wednesday, avoiding a default third time in the line, seems to have underpinned the mild risk-on mood amid the quiet markets and probed the EUR/USD bears.

It’s worth noting that Germany’s Harmonized Index of Consumer Price (HICP), the headline inflation figure, matched 0.5% MoM and 4.6% YoY initial estimations for October.

Even so, not-so-positive comments from US Trade Representative (USTR) Katherine Tai citing weakness in China’s phase 1 performance test the optimists ahead of next week’s virtual summit of US President Biden and his Chinese counterpart Xi Jinping. The same keeps the pair sellers hopeful amid brighter chances of the Fed to precede the ECB in the rate lift-off.

Amid these plays, stock futures struggle for clear direction and the Asia-Pacific indices trade mixed by press time.

Given the off-day for the US banks, EUR/USD traders may witness a lackluster day as the European calendar also remains dull. However, risk catalysts like Evergrande, China and a race between the Fed and the European Central Bank (ECB) to hike rates may entertain the pair watchers.

Technical analysis

A five-month-old descending trend line joins the June 2020 peak to highlight the 1.1425-20 level as a tough nut to crack for the EUR/USD bears amid oversold RSI conditions. However, the corrective pullback will be challenged by October’s low and 20-DMA, respectively near 1.1525 and 1.1595.