EUR/USD hovers below Fibonacci level, put bias strongest since late October

• EUR/USD has violated support of the 23.6% Fibonacci retracement of the Nov-Jan rally.
• Risk reversal on EUR/USD hits a multi-month low on put demand. 
• The US dollar tracks the longer duration Treasury yields higher.

EUR/USD looks south, having found acceptance under widely-tracked Fibonacci retracement support. Options market data shows the strongest bearish bias in at least two months. 

On Monday, the currency pair closed under 1.2173 (23.6% Fibonacci retracement of Nov-Jan rally) and registered its third consecutive daily decline. At press time, the pair is trading in a sideways manner near 1.2145.

The pullback from the high of 1.2349 seen last week could be associated with the dollar’s broad-based bounce fueled by an uptick in the US Treasury yields. 

The longer duration yields have jumped to multi-month highs on expectations for a bigger fiscal stimulus under Joe Biden’s leadership and rising inflation expectations. 

According to technical charts, EUR/USD’s pullback could be extended to the 1.2050-1.20 range. The options market shows increased demand for put options; sign investors are adding bets to position for losses in the single currency. 

One-month risk reversals on EUR/USD, a gauge of calls to puts, have dropped to -0.30 to hit the lowest level since Oct. 29, according to data provided by Reuters. The metric has declined from 0.125 to below zero over the past five trading days. The data shows increased demand for put options or bearish bets that give the purchaser the right but not the obligation to sell the EUR at a predetermined rate on or before a specific date. 

The economic calendar is light on Tuesday, which leaves the pair at the mercy of the action in the US bond yields. 

Technical levels