EUR/USD grinds higher past 1.0700 even as US President Biden’s SOTU sounds tough on China

• EUR/USD steadies during the first positive day in five, mildly bid of late.
• US President Biden tries to convince markets of American competitiveness versus China.
• Mixed comments from Fed speakers, retreat in US Treasury bond yields underpins EUR/USD recovery.
• Comments from central bank officials, risk catalysts eyed amid a light calendar.

EUR/USD floats around 1.0725-30 after snapping a four-day downtrend as the pair traders struggle to believe in the hawkish comments from US President Joe Biden’s State of the Union (SOTU) speech. In doing so, the major currency pair also takes clues from downbeat US Treasury bond yield and mixed comments from the Federal Reserve (Fed) speakers, matching the latest statements from the European Central Bank (ECB) officials.

“We are in the strongest position in decades to compete with china or anyone else,” per the statements of the SOTU pre-release per Reuters. US President Biden is also likely to state that if China threatens US sovereignty, the US will act to protect the country, per the report.

It should be noted that US President Biden tried to placate fears of another round of Sino-American tussles on Monday by saying, “The balloon incident does not weaken US-China relations.” However, China’s rejection of the Pentagon’s request keeps the geopolitical tension high and teases US Dollar buyers. “China has declined a US request for a phone call between US Defense Secretary Lloyd Austin and Chinese Defense Minister Wei Fenghe,” a Pentagon spokesman said on Tuesday reported Reuters.

That said, US 10-year Treasury bond yields snap a three-day uptrend while retreating from a one-month high of around 3.68% to 3.66% by the press time. The same weigh on the US Dollar Index (DXY), down for the second consecutive day to near 103.30 at the latest. That said, the S&P 500 Futures print mild losses to track Wall Street and portray downbeat sentiment.

On Tuesday, Minneapolis Federal Reserve (Fed) President Neel Kashkari told CNN, "We may have to hold rates at a higher level for longer," while adding that he is not forecasting a recession. Following that, Federal Reserve Chairman Jerome Powell said, “Expect 2023 to be a year of significant declines in inflation,” while also adding that if data were to continue to come in stronger than expected, would certainly raise rates more.

On the other hand, ECB policymaker Francois Villeroy de Galhau said on Tuesday that the Eurozone was not very far from the peak of inflation, as reported by Reuters.

Moving on, EUR/USD traders should pay attention to the risk catalysts for fresh impulse amid a light calendar.

Technical analysis

EUR/USD justifies bullish technical set-up comprising Tuesday’s Doji and the Golden cross, suggesting further upside towards the previous support line from early November 2022, around 1.0860.

Also read: EUR/USD Price Analysis: Bullish Doji, Golden cross tease buyers above 1.0700