EUR/USD rebounds sharply and prints daily highs above 1.0870

• EUR/USD turns positive as the US dollar corrects lower.
• DXY drops for the first time in nine trading days.
• On Thursday, the ECB will announce decisions on monetary policy.

The EUR/USD rebounded sharply during the last hours and climbed from 1.0820 to 1.0878, reaching a fresh daily high. The move higher took place amid a decline of the US dollar across the board. The greenback lost momentum as US yields turned to the downside.

The US 10-year yield fell from 2.75 to 2.65%, reaching the lowest level since Friday, while the 30-year dropped from the multi-year high at 2.87% to 2.76%. The recovery in Treasuries weighed on the greenback.

The DXY is falling by 0.28%, ending an eight-day positive streak. It is hovering around 100.00. It is the first strong sign of a pause on the greenback’s rally. Under that scenario, EUR/USD could benefit, but a risk event for the euro is ahead.

On Thursday, the European Central Bank (ECB) will announce its decision on monetary policy. A more aggressive approach toward inflation is expected. Analysts at TD Securities see a “sharp hawkish pivot from the ECB this week, with an announcement that the APP will conclude at the end of May, and a clear signal that rate hikes will follow.” They still see the euro under pressure and look for near-term rallies to fade.

Supported by 1.0800

The EUR/USD again, like last month, found support above 1.0800 and is rebounding. Despite moving away from that critical area, risks remains tilted to the downside. A break under 1.0800 should clear the way to more losses.

If the move to the upside gains momentum, the next resistance might be seen at 1.0900 and above a more important barrier at 1.0940. A daily close above 1.0940 should alleviate the bearish pressure.

Technical levels