EUR/USD pulls back from session highs at 1.1670

• The euro retreats to 1.1640 from three-week highs at 1.1640.
• The dollar loses ground as US bond yields' rally stalls.
• EUR/USD: Above 1.1665, the pair might reach the mid-range of 1.17 – Scotiabank.

The euro has extended its recovery on Tuesday, fueled by a positive market mood, to reach the upper range of 1.1600 for the first time since late September. The pair has pulled back afterwards, to consolidate well above 1.1600, putting some distance from the 15-month low hit last week, at 1.1520 area.

US dollars weakness is giving a breather to the euro

The common currency has been buoyed by a weaker greenback on Tuesday. The US dollar is losing ground, weighed by a pause on the US T-Bond yields’, which had surged to multi-month highs over the last weeks, amid the increasing expectations of QE tapering by the Federal Reserve.

Furthermore, the brighter market sentiment, with Johnson & Johnson’s and Travellers posting better than expected quarterly earnings, have revived the optimism observed last week on the back of upbeat reports from the major banks, which has increased demand for riskier assets.  The US Dollar Index, as a result, is trading about 0.25% lower on the day, after having bottomed at 93.45, its lowest level in the last three weeks.

On the macroeconomic front, US building activity has shown an unexpected contraction in September, revealing that shortages in raw materials and labour are starting to squeeze the construction sector and may have a negative impact on the third quarter's economic growth. Housing starts declined 7.7% in September, and August’s reading has been revised down to a 5.6% growth from the 6% previously estimated.

EUR/USD: Breach of 1.1665 could send the pair to the mid-range of 1.17 – Scotiabank

The FX Analysis team at Scotiabank sees the pair trading near a key resistance level that might offer a fresh impulse to the EUR/USD’s recovery: The EUR/USD rally has extended to retest 1.1665 resistance so it will be pivotal in determining whether this EUR rebound extends or starts to fizzle out (…) A push above 1.1665 will drive the EUR on to the mid-1.17s.”

Technical levels to watch