EUR/USD rebound fades near 1.0200 as traders await US inflation

• EUR/USD remains sidelined after trimming the week-start gains.
• Italian politics, German gas crisis and US-China tussles over Taiwan seem to challenge bulls.
• Firmer EU Sentiment data, downbeat yields restrict downside momentum.
• Second-tier employment-related US data will join risk catalysts to direct short-term moves.

EUR/USD seesaws around 1.0200, after retreating from 1.0221, as traders seek fresh clues during Tuesday’s Asian session. The major currency pair began the week on a positive front before paring some of the gains by the end of Monday. However, a lack of major data/events, as well as cautious sentiment ahead of the US Consumer Price Index (CPI) for July, up for publishing on Wednesday, seems to restrict the latest moves.

Firmer prints of the Eurozone Sentix Investor Confidence Index join a retreat of the US Treasury yields to portray the EUR/USD gains the previous day. That said, the key sentiment gauge Index improved to -25.2 for August versus -24.7 expected and -26.4 prior. Details suggest that the current situation in the eurozone recovered from the lowest since March 2021, to -16.3 versus -16.5 marked in the previous month. An expectations index, however, remains near the lowest since December 2008 while improving a bit to -33.8 at the latest. On the other hand, the US Dollar Index (DXY) registered a 0.19% daily loss to 106.37.

Elsewhere, jitters in Italian politics due to the centrist Azione’s pullback from the newly formed alliance ahead of the September elections appear to have exerted downside pressure on the Euro. “Having agreed to form an alliance with the Democratic Party and the +Europe party just last week, the centrist Azione has now pulled out with party head Carlo Calendar starting that "the pieces just didn't fit together". The alliance was formed in an attempt to prevent a more right-wing government coming to power following the September 25 vote,” said Reuters while saying the Market News Publishing US.

It should be noted that US President Joe Biden’s dislike for China’s aggression towards recapturing Taiwan and criticism of House Speaker Nancy Pelosi’s visit to Taipei appeared to have also restricted the EUR/USD gains the previous day.

Amid these plays, the US 10-year Treasury yields dropped nearly seven basis points (bps) to 2.75% at the latest, following a 14-bps run-up the previous day. Further, Wall Street began Monday’s trading on a firmer footing before closing mixed whereas the S&P 500 Futures print mild gains by the press time.

Looking forward, the US Nonfarm Productivity and Unit Labor Costs for the second quarter (Q2) could entertain EUR/USD traders. Forecasts suggest that the US Nonfarm Productivity could improve to -4.6% from -7.3% prior while Unit Labor Costs may ease to 9.5% versus 12.6% previous readings. Other than that, headlines surrounding Taiwan and Russia will also be important for clear directions.

Also read: US CPI Preview: It is the hard core that counts, five scenarios for critical inflation data

Technical analysis

EUR/USD remains sidelined between the 21-DMA level of 1.0170 and a two-month-old resistance line near 1.0280.