EUR/USD pares weekly loss above 1.1300 as yields weigh on USD

• EUR/USD keeps bounce off 16-month low, grinds higher of late.
• Inflation expectations, US housing numbers weigh on US Treasury yields amid sluggish session.
• ECB policymakers praise economic activities, tame reflation fears.
• Speeches from Fed, ECB members will join US data to entertain intraday traders.

EUR/USD licks its wounds around 1.1335, up 0.08% intraday during early Thursday. The major currency pair dropped to the fresh low since July 2020 the previous day before bouncing off 1.1263 to close the session with mild gains. That said, a pullback in the US Treasury yields weigh on the US dollar and challenge the buyers amid a sluggish session with a light calendar.

The US Dollar Index (DXY) marks a second consecutive daily loss, down 0.09% intraday around 95.70 while tracking the two basis points (bps) of a downside by the US 10-year Treasury yields. It’s worth noting that the DXY jumped to a fresh 16-month high and the US bond yields refreshed three-week tops the previous day but closed in negative territory for the first time in the week.

While checking the moves, soft US Housing Start and a two-day decline of the US inflation expectations can be linked as the key catalysts. US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, drop for the second consecutive day on Wednesday, per the data source Reuters.

Additionally, ECB policymakers’ rejections to the reflation fears and hopes of moderate economic growth going forward also favored the EUR/USD buyers the previous day. On the contrary, Charles L. Evans, the Chief Executive Officer of the Federal Reserve Bank of Chicago said, “It will take until the middle of next year to complete the Fed's wind-down of its bond-buying program, even as the central bank remains 'mindful' of inflation.”

Recently favoring the EUR/USD prices could be cautious optimism in the market as the US lauds supply chain improvements and China’s Evergrande proposes to sell 1.662 billion shares in Hengten Networks at HK$1.28.

Moving on, US Jobless Claims, expected to ease from 267K to 260K, will join the Philadelphia Fed Manufacturing Survey for November, likely 24 versus 23.8 prior, to entertain the EUR/USD pair traders. However, major attention will be given to the ECB and Fed policymakers’ comments as the divergence between the two central bank’s next moves amplify of late.

Technical analysis

Corrective pullback remains elusive until crossing the previous support line from August near 1.1400. Alternatively, the recent multi-month low of 1.1260 will precede late 2019 peaks surrounding 1.1240 to challenge EUR/USD bears.