EUR/USD retreats towards 1.0850 as US Dollar traces yields, US Factory Orders, Eurozone PPI eyed

• EUR/USD clings to mild losses near 1.0890 as it pares the week-start gains amid sluggish session.
• US Dollar tracks recovery in yields despite downbeat Fed bets, softer US data.
• Russia’s Lavrow indirectly warns Eurozone and weighs on Euro while fresh US-China tension also allows USD to lick its wounds.
• Second-tier US, EU data can entertain traders but risk catalysts are the key to follow for clear directions.

EUR/USD makes rounds to 1.0890-85 as the bulls take a breather amid a light calendar, as well as mildly offbeat sentiment, during early Tuesday. The Euro pair’s latest retreat could also be linked to the rebound in the US Treasury bond yields, which in turn allow the US Dollar to pare the week-start fall ahead of second-tier data.

US Dollar Index (DXY) prints mild gains around 102.20 after falling the most since March 22 the previous day. With this, the greenback’s gauge versus the six major currencies rebound from the one-week low. That said, the US 10-year and two-year Treasury bond yields lick their wounds around 3.42% and 3.98% after printing a four-day and two-day downtrend in that order.

Apart from the corrective bounce in yields, mixed concerns about the inflation and geopolitical woes surrounding Russia and China also weighed on the EUR/USD price. That said, the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, known as OPEC+, announced a surprise output cut on Monday and renewed inflation fears. However, US President Joe Biden shrugged off the OPEC+ move and said that it is not as bad as you think. However, US Federal Reserve Board Governor Lisa Cook, as well as US Treasury Secretary Janet Yellen flagged fears of higher inflation and challenges to global growth.

Elsewhere, Russian Foreign Minister Sergei Lavrov raised fears of escalating Moscow-Brussels tussle by saying, “The European Union (EU) has "lost" Russia.” The policymaker also added that Moscow will deal with Europe in a tough fashion if need be. Furthermore, the US-China tension is also on the table as Beijing keeps reiterating its dislike for the US-Taiwan ties but Washington seems to ignore it.

Amid these plays, S&P 500 Futures pause a four-day uptrend near the highest levels since February 16.

Moving on, Eurozone Producer Price Index (PPI) for February will precede the US Factory Orders for the said month to direct intraday EUR/USD moves. However, major attention will be given to the risk catalysts after the recent escalation of the geopolitical woes, which in turn can allow the Euro pair to ease.

Technical analysis

Unless declining below the convergence of the 21-DMA and the 50-DMA, around 1.0730-25 by the press time, EUR/USD pair remains on the buyer’s radar.