EUR/USD drops back below 0.9700 as yields rebound ahead of US GDP, German inflation

• EUR/USD pares the biggest daily gains since March as risk-aversion returns to the table.
• Yields, DXY reverse pullback from multi-year high amid hawkish central bankers, looming recession.
• Europe versus Russia tension is likely to exert downside pressure on prices.
• Germany’s HICP may not impress pair buyers unless US GDP disappoints.

EUR/USD sellers are up and roaring as sour sentiment joins firmer yields to renew the downside during early Thursday, after a day full of surprises and positive performance. That said, the major currency pair takes offers to renew the intraday low near 0.9670 while reversing the previous day’s bounce off the 20-year low, also consolidating the biggest daily jump in six months.

Wednesday’s risk-on mood and China’s efforts to propel the domestic markets in an attempt to overcome slowdown fears seem to favor the recent rebound in the US Treasury yields, as well as the US dollar.

On the same line could be the People’s Bank of China’s (PBOC) first increase in the onshore yuan fix in nine days and plans to issue 2.5 trillion yuan in government bonds in Q4.

Additionally, the markets’ doubts about the Bank of England’s (BOE) capacity to restore the British economic performance while keeping the recently criticized fiscal plan weigh on the EUR/USD prices. Further, the hawkish commentary from the global central bankers, including those from Europe and the US, joins the looming energy crisis in Europe and Russia’s hesitance to respect the Western pressure to exert additional downside pressure on the major currency pair.

It should be noted that the hawkish comments from the European Central Bank (ECB) policymakers and the Bank of England’s (BOE) bond-buying helped the EUR/USD to rebound the previous day.

Also read: EUR/USD struggles to extend rebound beyond 0.9700, German Inflation, US GDP eyed

Against this backdrop, the US 10-year Treasury bond yields pare the biggest daily loss in six months and allow the US Dollar Index (DXY) to jump back towards the 20-year high marked the previous day. It’s worth noting that the S&P 500 Futures print mild losses and fades bounce off a 21-month low of late.

Looking forward, Germany’s headline inflation data, namely the Harmonized Index of Consumer Prices (HICP), could direct immediate EUR/USD moves amid upbeat expectations from the release, 10.0% YoY versus 8.8% prior. Following that, readings of the US Q2 Gross Domestic Product (GDP), expected to confirm -0.6% annualized figure, will be important to watch clear directions.

To sum up, EUR/USD weakness is likely to continue even if the German/US data challenge the pair’s downtrend. The reason could be linked to the risk-off mood and the US dollar’s safe-haven status.

Technical analysis

The bullish MACD signals and the firmer RSI (14) keep the EUR/USD buyers hopeful. That said, the 21-SMA, currently around 0.9640 offers immediate support ahead of the resistance-turned-support line from September 13, near the 0.9600 threshold.

Alternatively, a convergence of the downward sloping trend line from August 23 and the 50-SMA, around 0.9800 at the latest, appears a tough nut to crack for the pair buyers.