EUR/USD recovers from 3.5-month low as 10-year Treasury yield drops

• EUR/USD recovers from multi-month lows, tracking a drop in the US 10-year yield.
• China’s state funds intervene in stock markets, weakening the haven demand for the dollar.  
• Euro’s bounce could be short-lived, as yields are likely to continue trending higher.

The bid tone around the US dollar weakens with a pullback in Treasury yields, allowing a bounce in EUR/USD from multi-month lows.

The pair now trades near 1.1860, representing a 0.12% gain on the day, having hit a low of 1.1835 in Asia. That was the lowest level since Nov. 24. The 10-year US Treasury yield has declined to 1.57% from the 12-month high of 1.62% reached on Monday.  

Also, news that China’s state funds are intervening in stock markets to arrest the drop looks to be aiding the recovery in EUR/USD.  

The relief, however, could be short-lived, as yields still have plenty of room to rise, according to some observers.    

“Treasury yields should be comparable to the average of nominal US GDP and German bund yields, a proxy for the level of interest rates in the international markets. By that measure, the comparable bond yields would be above 3%, should the consensus forecasts pan out,” DoubleLine Capital LP’s founder Jeffrey Gundlach, said, as per Bloomberg.  

Besides, Eurozone’s relatively slow vaccine rollout and coronavirus lockdowns in multiple regions could keep the bulls from pushing EUR higher.  

Data-wise, the focus today will be on the German Trade Balance for January and the Eurozone Gross Domestic Product and Employment Change Data for the fourth quarter of 2020.  

Technical levels