Search ForexCrunch
  • EUR/USD trades above 1.22 as US yields retreat from multi-month highs. 
  • The pullback in yields could be temporary as US fiscal stimulus expectations persist. 
  • Some analysts say the dollar’s yield-driven rally could be transient.
  • The US CPI and Lagarde’s speech could influence market trends on Wednesday.

EUR/USD is extending Tuesday’s gain with the US Treasury yields losing altitude and causing a broad-based decline in the US dollar. 

The pair is trading above 1.2210 at press time, representing a 0.10% gain on the day, having carved out a bullish inside day candle on Tuesday. The US 10-year yield fell from 1.18% to 1.12%, and is now hovering near 1.10%

That said, it is still significantly higher than the 0.9% level seen a week ago. The pullback seen in the past 24 hours could be short-lived, as inflation expectations remain elevated near multi-month highs, and the US President-elect is expected to announce additional fiscal stimulus on Thursday.

If yields recover losses, EUR/USD will likely come under pressure. Analysts at HSBC are skeptical about the sustainability of the dollar’s yield-driven bounce and expect major currencies to continue tracking risk sentiment rather than yield differentials. 

The US Consumer Price Index, scheduled for release at 13:30 GMT, could influence bond yields and demand for the US dollar. The focus would also be on the European Central Bank (ECB) President Christine Lagarde’s speech and the Eurozone Industrial Production data. With the Eurozone bond yields rising along with the US treasury yields despite a relatively weak fiscal stimulus by Eurozone governments, the ECB President has very little room to sound hawkish. The central banker is likely to reiterate willingness to provide more easing if required. 

Technical levels