EUR/USD retreats towards 1.1000 on bond rout ahead of Fed’s Powell

• EUR/USD fades bounce off weekly low as traders await key catalysts.
• US Treasury yields refresh three-year high, global bonds mark biggest fall on record as central bankers brace for tighter monetary policy.
• Ukraine-Russia tussles continue, US braces for more sanction on Moscow but Europe remains divided.
• Covid resurgence adds to the list of catalysts needing attention, bears eye Powell’s hawkish remarks.

EUR/USD remains pressured around 1.1025 on the US dollar’s resistance to extending the previous day’s losses during Wednesday morning in Europe. Also challenging the major currency pair is the cautious mood ahead of the speech from Federal Reserve (Fed) Chairman Jerome Powell amid record losses in bond markets.

While Powell’s early-week comments are held responsible for the latest slump in the bond market, St Louis Fed President James Bullard and Cleveland Fed President Loretta Mester were the recent ones who favored 50 basis points (bps) of a rate lift. It’s worth noting that swirling money market bets of a 190 bps rate hike by the Fed during 2022 also weigh on the US Treasury yields.

That said, the US 10-year Treasury yields renew the highest levels since May 2019, around 2.41% at the latest while the 2-year counterpart prints 2.19% figure by the press time, after renewing three-year top to 2.198% before a few minutes.

Even so, the US dollar struggles to cheer the gain of the Treasury yields as market players do expect central bankers to return to normal after they’re done fighting the inflation woes, hopefully after the Ukraine-Russia war gets over.

Talking about the Moscow-Kyiv tussles, Ukraine’s recently easy stand fails to provide any positive impact as Russian ships play hardball in Mariupol. Also challenging the odds of improving are the Western sanctions. Recently, the Wall Street Journal (WSJ) signaled that the Biden administration is up for sanctioning over 300 Russian lawmakers while also showing readiness to seize Moscow’s gold with their Treasury.

On the contrary, European policymakers remain divided over the Russian sanctions due to their reliance on the oil imports from Moscow. The same propels the market’s criticism of the bloc and highlights this weeks’ Eurogroup meeting.

Elsewhere, rising covid variant numbers in Europe and China’s record high daily virus infections, as well as fresh lockdowns, challenge the market sentiment, as well as the EUR/USD buyers.

Amid these plays, the stock futures struggle to track Wall Street’s gains and exert downside pressure on the EUR/USD prices.

Looking forward, Fed’s Powell is less likely to surprise the markets, expected to reiterate his previous hawkish signals, which in turn can keep EUR/USD sellers hopeful. However, risk catalysts are important too.

Technical analysis

EUR/USD bounced off the support line of a 12-day-long rising wedge bearish chart pattern, near 1.0980 at the latest, the previous day. However, a downward sloping resistance line from February 10, close to 1.1065 by the press time, seems to challenge the bulls of late. Also important to note are the bearish MACD signals that hint at the quote’s further declines.