EUR/USD grinds lower towards 1.1400 as yields rebound, ECB hawks retreat

• EUR/USD extends pullback from two-month high, remains pressured for the second consecutive day.
• ECB’s Lagarde step back from hawkish rhetoric on inflation, Kazaks also rejected July rate hike concerns.
• USD tracks firmer yields amid mixed sentiment relating trade, politics and Fed’s next move ahead of the key US CPI.
• US trade numbers to direct intraday moves, risk catalysts are more important.

EUR/USD holds onto the week-start bearish bias, mildly offered around 1.1420 during early Tuesday morning in Europe.

Monday’s dovish comment from ECB President Christine Lagarde poured cold water on the face of EUR/USD bulls. “There is no need for big monetary policy tightening in the eurozone as inflation is set to fall back and could stabilize around 2%, European Central Bank President Christine Lagarde said on Monday,” per Reuters. On the same line were comments from Latvian Central Bank Governor, as well as the ECB policymaker Martins Kazaks who said, “The European Central Bank (ECB) could end its stimulus programme earlier than planned but it is unlikely to raise its main interest rate in July as investors are expecting,” said Reuters.

The US dollar rebound, backed by the firmer Treasury yields, could also be linked to the EUR/USD weakness.

It’s worth noting that a downbeat performance of German Industrial Production in December battled upbeat Euro area Sentix investor confidence for February but couldn’t recall the EUR/USD buyers.

On a broader front, receding US inflation expectations challenge increasing odds of a 0.50% Fed rate-hike in March and test the US dollar bulls. On the same line are the market’s recent cautious optimism backed by the covid-linked headlines and US-Japan trade news.

However, indecision over the Russia-Ukraine conditions joins Sino-American tussles to challenge the greenback sellers.

Amid these plays, the US 10-year Treasury yields added two basis points to 1.936%, close to the highest levels since late 2020, while the US stock future print mild gains around 4,485 at the latest. That said, the benchmark US T-bond coupons eased from a two-year high the previous day while Wall Street marked sluggish closing.

It should be noted that the market players await Thursday’s European Commission Economic Forecasts and the US Consumer Price Index (CPI) for better understanding. Though, the aforementioned risk catalysts and the US Goods and Services Trade Balance for December, expected $-83B versus $-80.2B, may offer intermediate directives.

Technical analysis

EUR/USD sellers need a daily closing below the 100-DMA level of 1.1420 to keep the controls and aim for the 50-DMA level surrounding 1.1325.

However, sustained trading beyond the 100-DMA and hidden bullish RSI divergence on the daily chart keep buyers hopeful to attack a three-month-old horizontal resistance area near 1.1480-85.