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  • In recent days, EUR/USD has been grinding higher after consolidating losses around 16-month lows.
  • As ECB and Fed officials push back on rate hike concerns, yields soften.
  • The US stimulus and XI-Biden talks improved market sentiment and strengthened the corrective pullback.

Towards Tuesday’s European session, the EUR/USD price is struggling to maintain its recovery from its 16-month low. However, the price fell to new lows since July 2020 the day before, then rebounded from 1.1360 in early Asia.

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Although declining US Treasury yields appear to have supported the EUR/USD recovery, a cautious mood ahead of key Eurozone and US statistics hinders progress.

Despite rising to a three-week high on Monday, the yield on 10-year US Treasuries fell two basis points to 1.60%. The US dollar index (DXY) stood at 95.43 for the softer bond coupon after rising 0.10% to its highest level since late 2020.

There is a strong correlation between comments from the European Central Bank (ECB) and the US Federal Reserve System (FRS) to track declining yields. Christine Lagarde, however, did not only rule out raising interest rates until 2022 but also referred to the negative consequences of tightening monetary policy the day before.

Thomas Barkin, President of the Richmond Federal Reserve Bank, stressed the need for a wait-and-see approach to curbing inflation. At the same time, Neil Kashkari, President of the Federal Reserve Bank, emphasized that the FOMC should not overreact to temporary factors.

As for EUR/USD buyers, the market’s optimism about Sino-US relations also speaks for itself after Joe Biden and Xi Jinping did not exchange negative remarks during their opening talks.

In addition, the more robust US Empire State Industrial Production Index and 31-year US inflation are encouraging sellers of EUR/USD. Additionally, concern that the recent deterioration in Covid conditions in the bloc might undermine economic recovery, even if eurozone GDP exceeds expectations by 2.2% q/q in the third quarter, prompted pairs of large buyers to participate.

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EUR/USD price technical analysis: Vulnerable to lose further

EUR/USD price

The 4-hour chart shows a strong bearish price action. The price is well below the 20-period SMA, while the average daily range is at 41%. Volume data is also pointing at further losses. We may see a drift towards the 1.1300 handle. On the upside, we may see a test of 1.1400 (support turned resistance) ahead of 1.1400.

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