EUR/USD rebound pokes 1.1300 on softer yields ahead of US ADP, FOMC Minutes

• EUR/USD bounces off fortnight low to consolidate recent losses, snaps two-day downtrend.
• US Treasury yields retreat amid mixed concerns over Omicron, Fed’s next move.
• European data contrasted softer US statistics, inflation expectations but Bund v/s Bond moves weighed on pair.
• Risk catalysts, second-tier figures from the bloc are also important for clear direction.

EUR/USD struggles to defend the bounce off two-week low, retreating to 1.1290 ahead of Wednesday’s European session.

A disparity between the US and German Treasury bond yields joined chatters surrounding the South African covid variant, namely Omicron, as well as the relating to the US Federal Reserve’s (Fed) next moves, to refresh fortnight low the previous day. However, the market’s indecision ahead of the US ADP Employment Change for December and FOMC Minutes seems to challenge the pair’s latest moves.

That said, the US Treasury yields struggle to extend the previous run-up while taking rounds to the six-week high flashed on Tuesday. On the contrary, German Bund yields retreated from a two-month high the previous day.

Talking about the data, German Retail Sales for December crossed MoM forecasts of -0.5% with +0.6%, the US figures came in comparatively weaker. That said, the ISM Manufacturing PMI dropped to the lowest in 11 months in December, 58.7 versus 60.0 forecast and 61.1 prior, whereas November’s JOLTS Jobs Openings came in lower than the upwardly revised previous reading of 11.091M to 10.562M.

Other than the data, receding US inflation expectations and mixed comments from Minneapolis Fed President and 2022 voting FOMC member Neil Kashkari also challenge EUR/USD bears.

US inflation expectations, as per 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED) eased from a six-week high, while Fed’s Kashkari signaled the need for two rate hikes but couldn’t match the money market bets for three such actions in 2022.

Elsewhere, the World Health Organization (WHO) Incident Manager Abdi Mahamud sounds hopeful of overcoming the virus with lesser damage and challenging the US dollar’s safe-haven demand. "We are seeing more and more studies pointing out that Omicron is infecting the upper part of the body. Unlike other ones, the lungs who would be causing severe pneumonia," WHO Incident Manager Abdi Mahamud told Geneva-based journalists per Reuters.

That said, the EUR/USD pair’s near-term momentum depends upon the US data and  Federal Open Market Committee (FOMC) Meeting Minutes. Although market forecasts and recent job-linked data signal a downbeat print of ADP, which in turn could favor EUR/USD rebound, a hawkish surprise from the FOMC Minutes can’t be ruled out.

Read: US ADP December Preview: Suddenly its inflation, not jobs

Technical analysis

Despite the latest rebound, EUR/USD justifies the bearish cross of the 50-HMA under 200-HMA, as well as a clear downside break of an upward sloping trend line from December 19, currently around 1.1305. Given the steady RSI line baking the aforementioned bearish technical catalysts, the latest grind to the south may continue.

Meanwhile, the corrective pullback may aim for the previous support line near 1.1305 but may remain elusive until crossing the 200-HMA level close to 1.1325.