EUR/USD stays defensive above 1.1300 as Omicron, inflation concerns loom

• EUR/USD consolidates the biggest daily jump in fortnight, pressured around weekly top.
• Risk-off mood underpins US Treasury yields, DXY ahead of US CPI.
• Omicron, geopolitics weigh on sentiment, Fed rate hike chatters renew on firmer US inflation expectations.
• Second-tier US/German data eyed but US inflation, virus updates become crucial catalysts.

EUR/USD bounces off intraday low to pare daily losses around 1.1335, down 0.12% near the weekly top ahead of Thursday’s European session.

The major currency pair jumped the most in two weeks the previous day amid firmer market sentiment, mainly linked to the South African covid variant and its cure. However, sour sentiment in Asia challenged the EUR/USD buyers afterward.

Behind the downbeat mood are the chatters concerning the four-time more transmissibility of the South Africa-linked COVID-19 strain, dubbed as Omicron. On the same line was the spark in virus variant cases in Europe that recalled the activity restrictions in Germany, France and the UK.

Furthermore, US-China tussles, talks over Iran diplomacy and increased calls of the Fed’s sooner rate hike were additional catalysts to weigh on the market sentiment and EUR/USD prices.

Recently, US Assistant Secretary of Defense for Indo-Pacific Security Affairs Ely Ratner said, “Bolstering Taiwan's self-defenses is an ‘urgent task’ and an essential feature of deterring China.” On the same line were the US-Russia tussles over Ukraine and Washington-Israel talks concerning Tehran, not to forget a major setback for Beijing Olympics 2022.

On the other hand, a four-day rebound of the US inflation expectations ahead of the key US CPI data, up for Friday, pushes analysts to expect, per Reuters, a sooner rate hike from the Fed, which in turn favors the US Treasury yields as well as the US Dollar Index (DXY).

That said, US 10-year Treasury yields stay firmer around the week’s high near 1.51% while stock futures print mild losses at the latest.

Looking forward, German trade numbers and the US Jobless Claims could entertain the EUR/USD traders while the risk catalysts are major factors to watch. Above all, Friday’s US Consumer Price Index (CPI) is the key to follow for clearer direction.

Technical analysis

A successful break of the 100-SMA and a monthly resistance line, now support around 1.1285-90, keeps EUR/USD buyers hopeful. However, multiple tops marked since November 15, as well as descending resistance line from October 28, challenge the pair bulls below 1.1385-90.