EUR/USD snaps two-day downtrend above 1.1300 as USD tracks softer yields
- EUR/USD picks up bids to reverse early Asian session losses.
- France reports record covid infections, PM Macron to hold emergency meeting on Monday.
- US VP Harris stays hopeful over BBB, shows readiness to fight inflation.
- 4,500 flights canceled globally during Christmas weekend, Russia-Ukraine tension propel European gas woes.
EUR/USD grinds higher past 1.1300, picking up bids to 1.1325 during early Monday morning in Europe. In doing so, the major currency pair prints daily gains for the first time in three as the US Dollar Index (DXY) tracks downbeat T-bond yields amid a sluggish holiday period.
The US Dollar Index (DXY) drops 0.08% to 96.10 whereas the US 10-year Treasury yields dropped 1.1 basis points (bps) to 1.482%, stepping back from a two-week high flashed the previous day.
The reason could be linked to the market’s optimism concerning President Joe Biden’s Build Back Better (BBB) stimulus plan, backed by comments from US Vice President Kamala Harris, as well as hopes that the economic transition isn’t stopping due to the South African COVID-19 variant, namely Omicron. The reason could be linked to an 8.5% jump in the US retail sales during this year's holiday shopping season from Nov. 1 to Dec. 24, per Mastercard data.
It’s worth noting that previous studies showing lesser hospitalizations due to Omicron and upbeat developments at the medical front relating to the cure of the COVID-19 strain also weigh on the US Treasury yields and favor the EUR/USD prices.
However, a jump in the covid infections in France, which reported the all-time high daily infections during the weekend and a doubled rate of the covid-linked hospitalization in the last month, challenge the EUR/USD buyers. Also, the average number of new US coronavirus cases has risen 45% to 179,000 per day over the past week, per Reuters tally. The worsening of the virus conditions resulted in multiple travel bans during the holiday season and the same resulted in the 4,500 flight cancellations, per the report shared by Reuters.
Elsewhere, escalating geopolitical tension between Russia and the West, mainly with Europe, weigh on European gas supplies as Reuters quote data from German network operator Gascade to say, “The Yamal-Europe pipeline that usually delivers Russian gas to Western Europe was sending the fuel back to Poland for a sixth straight day on Sunday.”
Above all, holiday-thinned markets seem to care little for the risk-off mood amid a lack of major data/events, which in turn allows the EUR/USD to consolidate the yearly losses.
Moving on, comments from French President Emmanuel Macron and Dallas Fed Manufacturing Index for December, expected 13.2 versus 11.8 prior, may offer intermediate clues to the EUR/USD pair. it’s worth observing that the ECB v/s Fed battle can keep the EUR/USD pressured unless any surprises erupt, which is less likely during the rest of 2021.
Technical analysis
EUR/USD bounced off the 200-SMA on the four-hour chart, near 1.1305, the previous day but the virus-led market fears seem to weigh on the quote, joined by bearish MACD signals and multiple pullbacks below a downwards sloping trend line from November 30. Even so, a confluence of the 100-SMA and 50-SMA, around 1.1290-95, becomes a tough nut to crack for the pair sellers before targeting 1.1260 and the monthly low surrounding 1.1260.
Meanwhile, recovery moves remain elusive until staying under the stated resistance line, close to 1.1350 at the latest.