EUR/USD: Technical break, strong yields hint at 1.0900, ECB’s Lagarde eyed

EUR/USD pares intraday losses around 1.1000 amid the early European morning on Tuesday. Even so, the major currency pair holds onto the downside break of the previous support line from March 07 as bond sellers’ aggression propels the US dollar.

That said, the US 10-year Treasury yields and the 2-year counterpart both rise to a fresh high since May 2019 while taking the bids near 2.33% and 2.17% respectively level by the press time. Behind the moves are the US Federal Reserve (Fed) policymakers’ hawkish mood and inflation fears.

Atlanta Fed President Bostic and Richmond Fed’s Barkin promoted the US central bank’s ability to restrain inflation by indirectly signaling a faster pace of the rate hike. However, the comments from Fed Chair Jerome Powell who said, “The Fed will raise rates by more than 25bps at a meeting or meetings if necessary,” offered a major upside momentum to the T-bond coupons.

On the same line were comments from International Monetary Fund’s (IMF) Asia-Pacific Director Changyong Rhee who said, “The US has the room to raise interest rates.” IMF’s Rhee also mentioned that Asia’s inflation will peak in Q2 of this year. It’s worth noting that firmer US inflation expectations, as portrayed by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, also underpins the firmer yields and weigh on the EUR/USD prices.

Alternatively, Russia’s second coupon payment, as signaled by Reuters’ source, joined Ukraine President Volodymyr Zelenskyy’s readiness to discuss commitment from Ukraine not to seek NATO membership to challenge the pair bears of late. Previously, Ukraine President Zelenskyy mentioned that no immediate decision is possible on occupied Ukrainian territory per Interfax. Additionally, US President Joe Biden also cited fears of a cyberattack against the US.

At home, European Central Bank (ECB) President Christine Lagarde dismissed risks of stagflation in her speech at the Institut Montaigne, in Paris, on Monday. “ECB monetary policies will not be in sync with the Fed policy,” adds ECB President Lagarde.

Amid these plays, stock futures in the US and Europe print mild losses while the US Dollar Index (DXY) remain firm for the third consecutive day, up 0.13% intraday around 98.65 at the latest.

Looking forward, EUR/USD bears will keep eyes on the central bankers’ comments, as well as Ukraine-Russia headlines to tighten the grips.

Technical analysis

A clear downside break of a two-week-old ascending trend line joins a sustained U-turn from January’s low, around 1.1125, to direct EUR/USD prices towards the mid-March swing low near 1.0900. However, any further weakness past 1.0900 will make the quote vulnerable to test the monthly low surrounding 1.0805.

Meanwhile, the 21-DMA level of 1.1065 acts as an immediate hurdle for the EUR/USD to cross before challenging January’s bottom of 1.1125.