EUR/USD regains 1.1300 as yields step back from six-week high

• EUR/USD consolidates the biggest daily losses in a fortnight.
• US Treasury yields retreat from multi-day top amid quiet markets, light calendar in Asia.
• Coronavirus woes, expectations of faster rate-hike from Fed propelled yields the previous day.
• German Retail Sales, US ISM Manufacturing PMI to decorate calendar.

EUR/USD licks its wounds near 1.1305, refreshing intraday high during Tuesday’s Asian session. The major currency pair dropped the heaviest in two weeks the previous day after a jump in the US Treasury bond yields propelled the US dollar.

A faster pace of the coronavirus spread exert pressure on the medical system and raise concerns over another round of widespread economic and health losses. The risk-off mood also takes clues from the rising hopes of faster Fed rate-hikes in 2022. Both these catalysts weigh bond prices and fuel yields, which in turn favor EUR/USD bears.

That said, the health ministries from Spain and France have reported record covid cases while the US also marked a doubling of the virus numbers. “COVID worries have been front and center once again for investors since the start of the holiday season. The number of new COVID-19 cases has doubled in the last seven days to an average of 418,000 a day, mostly attributed to the highly transmissible but milder Omicron variant,” according to a Reuters tally.

It’s worth noting that the US inflation expectations, as per the 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED), jumped to a fresh high in six weeks to portray further prices pressure ahead, allowing Fed hawks to keep controls. The same adds strength to the US Treasury yields.

Talking about data, the softer prints of the US Markit Manufacturing PMI for December failed to entertain traders ahead of today’s US ISM Manufacturing PMI for the said month, expected 60.2 versus 61.1.

Amid these plays, the DXY rose around 0.60% on Monday, the biggest daily gains since mid-December while the US Treasury yields jumped to the six-week top for 30-year, 20-year, 10-year and 5-year notes. That said, the Wall Street benchmarks also began 2022 on a firmer footing amid hopes of further stimulus.

In addition to the US ISM Manufacturing PMI, German Retail Sales for November, expected -0.5% MoM versus -0.3% prior, will also direct short-term EUR/USD moves. However, major attention will be given to the virus fears.

Read: ISM Manufacturing PMI Preview: Low expectations in three figures open door to dollar upswing

Technical analysis

EUR/USD pulled back from the 50-DMA, around 1.1370 at the attest, during the previous day to conquer the 21-DMA immediate resistance, near 1.1310. The DMA breakdown joins downbeat oscillators to direct the quote towards an ascending support line from November 24, close to 1.1255 by the press time.