EUR/USD recovers above 1.0850 on broad USD weakness

• Sharp drop in US Treasury bond yield takes its toll on USD.
• US Dollar Index drops to 96.20 area after opening with a bullish gap.
• German IFO Business Climate Index improves modestly in February.

The EUR/USD started the new week under pressure with a bearish gap after the weekend reports showed a surge in confirmed coronavirus cases globally, especially in Italy and South Korea. According to Italian news agency ANSA, the number of confirmed cases in Italy currently stands at 229 with 7 fatalities.

After sliding toward the 1.0800 handle during the European session, however, the broad-based USD weakness in the second half of the day helped the pair close the opening gap and turn positive on the day. As of writing, the EUR/USD pair was up 0.15% on the day at 1.0860.

DXY turns south in American session

Although the USD was able to capitalize on risk aversion in the past few weeks, a sharp drop witnessed in the US Treasury bond yields seem to have finally triggered a heavy selloff. At the moment, the 10-year US Treasury bond yield is down 7.7% on the day at 1.359%. The US Dollar Index (DXY), which advanced to a daily high of 99.64 earlier, was last erasing 0.18% on the day at 99.15.

In the meantime, Monday’s data showed that the headline German IFO Business Climate Index improved slightly to 96.1 from 96 in January 95.9 to beat the analysts’ estimate of 95.3. Furthermore, the Expectations Index rose to 93.4 from 92.9 and the Current Assessment Index arrived at 98.9 to surpass the market expectation of 98.6.

On Tuesday, Gross Domestic Product (GDP) data for the fourth quarter from Germany will be looked upon for fresh catalysts. Investors will continue to keep a close eye on coronavirus headlines as well.

Technical levels to watch for