EUR/USD retreats from monthly top towards 1.0700 as yields dribble ahead of EU/US data

• EUR/USD clings to mild gains near one-month high, grinds near multi-day top of late.
• US Dollar traces downbeat Treasury bond yields as inflation data failed to bolster hawkish Fed bets.
• Receding fears of SVB, Signature Bank fallout also propel Euro prices.
• EU Industrial Production, US Retail Sales eyed for fresh impulse.

EUR/USD pares intraday gains from the highest levels in one month as it slides to 1.0745 heading into Wednesday’s European session. In doing so, the Euro pair struggles for clear directions even as the broadly weaker US Treasury bond yields and the US Dollar keep the bulls hopeful ahead of the key statistics from the Eurozone and the US.

The Euro pair’s latest weakness could be linked to the widening difference between the 10-year and two-year Treasury bond yields as the former stays mostly pressured around 3.68%, fading the previous day’s bounce, but the two-year bond coupons rise to 4.33% by the press time. It’s worth noting that the US 10-year Treasury bond yields, marked the biggest daily gain in five weeks the previous day whereas the two-year counterpart recovered from the six-month low.

Apart from the yields, the mixed sentiment in the market also tests the EUR/USD bulls of late. That said, the S&P 500 Futures remain sidelined despite Wall Street’s upbeat closing but MSCI’s Index of Asia-Pacific shares ex-Japan rise 1.19% by the press time.

While tracing the moves, downbeat US inflation data, increasing optimism towards Fed’s 0.25% rate hike in March and mixed sentiment major attention. On Tuesday, the US Consumer Price Index (CPI) and CPI ex Food and Energy both matched 6.0% and 5.5% YoY market forecasts, versus 6.4% and 5.6% respective previous readings. “The Federal Reserve is seen raising its benchmark rate a quarter of a percentage point next week and again in May, as a government report showed U.S. inflation remained high in February, and concerns of a long-lasting banking crisis eased,” said Reuters following the US inflation data release.

Alternatively, the European and the US policymakers’ inability to convince the market of the risks emanating from the latest fallouts of the Silicon Valley Bank (SVB) and Signature Bank seem to challenge the EUR/USD upside.

US Senate Banking Committee Chairman Sherrod Brown and Federal Reserve Governor Michelle Bowman ruled out chatters suggesting the grim conditions of the US banking industry late Tuesday. However, Wall Street Journal (WSJ) reported that a raft of tougher capital and liquidity requirements are under review, as well as steps to beef up annual “stress tests” that assess banks’ ability to weather a hypothetical recession, according to a person familiar with the latest thinking among U.S. regulators.

On the other hand, European Central Bank (ECB) policymaker Yannis Stournaras said, during an interview with a Greek newspaper, that he doesn’t see any impact from the collapse of Silicon Valley Bank (SVB) on Eurozone banks. Previously, Eurogroup's President Paschal Donohoe mentioned, “Euro-area has very limited exposure to SVB.”

Hence, the mostly softer US Treasury bond yields exert downside pressure on the US Dollar, especially after the previous day’s downbeat inflation data. However, Eurozone Industrial Production for January, expected 0.4% MoM versus -1.1% prior, will precede the US Producer Price Index, NY Empire State Manufacturing Index and Retail Sales for February to direct short-term EUR/USD moves.

Technical analysis

A daily closing beyond 50-DMA keeps EUR/USD bulls hopeful of poking the mid-February highs surrounding 1.0805.