EUR/USD aptly portrays holiday mood around mid-1.0600s, Treasury bond yields eyed

• EUR/USD picks up bids to pare early-day losses amid sluggish Treasury bond yields.
• US Dollar remains mildly bid as China-linked optimism fades.
• Bond rout keeps buyers hopeful despite recent inaction, Eurozone economic fears cap upside momentum.

EUR/USD reverses initial pullback as it grinds higher around 1.0640-50 amid early Wednesday morning in Europe.

The major currency pair initially took clues from the US Dollar rebound before the market’s inaction challenged the downside. Following that, the lower prices and a rebound from the short-term key support, near 1.0620, attracted bids and consolidated the previous losses. However, the holiday mood on the trading floor joins a light calendar and fewer macros to restrict the EUR/USD pair’s immediate moves.

Easing optimism surrounding China’s easing of the Covid-led restrictions joined the recent rebound in the US Treasury bond yields to tease the bears previously. However, the comparatively more hawkish mood at the European Central Bank (ECB) than the Federal Reserve (Fed) seems to keep the pair buyers hopeful. Even so, economic fears concerning the region limit the upside momentum amid inactive trading sessions.

That said, comments from the US Official challenged China-inspired COVID-19 optimism. US government may impose new COVID-19 measures on travelers to the United States from China over concerns about the "lack of transparent data" coming from Beijing, per Reuters.

It should be noted that hawkish comments from the most senior policymaker from the European Central Bank (ECB) seemed to have put a floor under the EUR/USD prices. The ECB has only just passed the halfway point of its tightening cycle and needs to be “in there for the long game” to tame high inflation, per ECB Governing Council member and Dutch central bank Governor Klaas Knot.

Elsewhere, the rebound in the US Treasury yields jostle with the firmer EU bond coupons but the economic fears over the bloc remain more important and weigh on the pair than those for the US economy. The reason could be linked to the latest analysis from Thomas M. Mertens, a Researcher from the Federal Reserve Bank of San Francisco’s Economic Research Department who came out with a recession predictor based on macroeconomic time series, particularly the jobless unemployment rate. The researcher claims that this predictor is almost as accurate as the slope of the yield curve but is more accurate at shorter horizons, suggesting no recession fears for at least the upcoming two quarters.

While portraying the mood in the market, the 10-year Treasury bond yields remain sidelined near 3.85%, after refreshing the six-week high the previous day, whereas the S&P 500 Futures remain indecisive while tracking the mixed closing of the Wall Street benchmarks. It should be observed the 10-year European Treasury bond yields jumped to the highest levels since 2011 the previous day.

Looking forward, a lack of major data/events could restrict EUR/USD moves but the buyers appear losing upside momentum of late. That said, the US Pending Home Sales for November which holds the market consensus of 0.6% versus -4.6% previous readings, will decorate the calendar.

Technical analysis

Although the oscillators suggest that the EUR/USD buyers are running out of steam, the 1.0620 support confluence comprising the 50-SMA and an upward-sloping trend line from late November appears a tough nut to crack for the bears. Alternatively, recovery moves need to stay beyond the latest swing high surrounding 1.0670 to direct the EUR/USD pair buyers toward the monthly top surrounding 1.0740.