EUR/USD stays defensive above 1.0600 ahead of US CB Consumer Confidence

• EUR/USD remains sidelined after two-day uptrend, fades bullish bias of late.
• Narrowing of the yield curve inversion, softer US Dollar joined hawkish ECB talks to favor the bulls.
• Mixed sentiment surrounding the bloc, softer German PPI probed buyers.
• Risk catalysts will also be important for fresh impulse.

EUR/USD struggles to extend the previous two-day uptrend during the early hours of Wednesday’s Asian session as it makes rounds to 1.0620-30. In doing so, the major currency pair portrays the market’s indecision despite the latest fall in the US Dollar and receding fears of the recession, as portrayed by easing yield curve inversion.

Bank of Japan (BOJ) rocked markets in Asia and Europe before Wall Street managed to close in green. The reason could be linked to the surprise move by the Japanese central bank that suggests lesser funds flowing to the ex-Japan bond markets due to a policy tweak. The Japanese central bank kept the monetary policy unchanged but widened the band of Yield Curve Control (YCC) to -/+ 0.5% from -/+0.25% prior.

The resulting moves could be witnessed more in the US Dollar and Treasury yields as the US Dollar Index (DXY) dropped the most in a week the previous day, down 0.67% intraday to 103.95, as the greenback traders feared less Japanese bond-buying from the US due to the BOJ action. It’s worth noting that Japan is the biggest holder of the US Treasury bonds and the latest move allows Tokyo to put more funds into the nation than letting it flow outside.

That said, the 10-year counterpart rose more than the two-year ones and hence reduced the yield curve inversion that suggests the odds of the recession.

It’s worth noting that the hawkish comments from the European Central Bank (ECB) officials joined mixed EU data to restrict EUR/USD moves. That said, ECB Governing Council member and French central bank governor Francois Villeroy de Galhau said, “The European economy is likely to avoid a hard landing.” On the same line, ECB policymaker Peter Kazimir said on Tuesday that the “monetary policy should tighten at a stable pace.”

Elsewhere, US Housing Starts declined by 0.5% MoM in November following October's 2.1% contraction while Building Permits fell by 11.2% versus a 3.3% drop recorded in the previous month. Further, the German Producer Price Index (PPI) for November dropped to -3.9% YoY versus -2.6% market forecasts and -4.2% prior.

Moving on, US CB Consumer Confidence for December, expected 101.00 versus 100.00 prior, could entertain the EUR/USD pair traders. However, major attention will be given to the risk catalysts for fresh impulse.

Technical analysis

Despite bouncing off the 10-DMA, around 1.0600 at the latest, the EUR/USD bulls need validation from the 1.0660 hurdle to keep the reins.