EUR/USD: Corrective pullback eyes 1.1485 amid softer USD

• EUR/USD keeps Friday’s rebound from yearly low, retreats of late.
• Mixed chatters over Fed rate hike join hopes over US stimulus, phase 1 deal to favor buyers.
• ECB policymakers stay divided over inflation fears.
• DXY tracks US Treasury yields lower, equity traders seem divided.

EUR/USD grinds higher around 1.1560, up 0.10% intraday heading into Monday’s European session. The major currency pair dropped to a fresh 16-month low on Friday before bouncing off 1.1432. In doing so, the quote formed a Doji candlestick formation, underpinning the latest rebound amid mildly offered US Treasury yields and the US dollar.

The mixed concerns over the US stimulus and inflation, as well as the Fed rate hike following Friday’s surprisingly downbeat Michigan Consumer Sentiment data that slumped to a 10-year low, seem to underpin the cautiously optimistic market mood. On the same line were the latest comments from US Treasury Secretary Janet Yellen and Federal Reserve Bank of Minneapolis President Neel Kashkari, coupled with the hopes of the US-China phase 1 deal.

Even so, the Fed rate hike concerns remain elevated, ignoring the policymakers’ ‘transitory’ outlook for inflation, as inflation expectations and details of the consumer confidence data highlight the reflation fears.

It’s worth noting that the recently mixed comments from the European Central Bank’s (ECB) policymakers also underpin the EUR/USD rebound. On Friday, Governing Council member Gediminas Simkus said inflation will fall below target in 2023, adding that it is not in line with the forward guidance conditions. His fellow Official at the ECB Olli Rehn said on Friday that the relief on supply bottleneck may not arrive until toward the end of 2022, as reported by Reuters.

Amid these plays, the US 10-year Treasury yields drop 2.4 basis points (bps) to 1.56% whereas the S&P 500 Futures struggle for a clear direction amid a sluggish Asian session.

Looking forward, a light calendar and the upcoming US-China talks may keep EUR/USD moves confined ahead of Tuesday’s US Retail Sales, expected to keep 0.7% MoM growth.

Technical analysis

Friday’s Doji joins nearly oversold RSI conditions and multiple supports to the downside to keep EUR/USD buyers hopeful to challenge the support-turned-resistance line from October, near 1.1485. On the upside, the further downside will aim for the previous day’s low of 1.1432, a break of which will direct EUR/USD towards June 2020 top, surrounding 1.1422.