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EUR/USD snaps two-day rebound near 1.1350 as USD tracks firmer yields


19 November 2021

EUR/USD stays pressured around an intraday low of 1.1352, down for the first time in three days ahead of Friday’s European session. In doing so, the major currency pair reacts to the US dollar recovery amid the lackluster early hours of trading. US Dollar Index (DXY) rises 0.12% intraday to 95.64 while following the US 10-year Treasury yields, up one basis point (bp) to snap a two-day fall around 1.596% at the latest.

Firmer US data and hawkish comments from Fed policymakers helped the US inflation expectations to recover following the two-day pullback from an 11-year high. The inflation gauge, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, underpins the US Treasury yields and the DXY to pick up bids.

That said, NY Fed President and FOMC Vice-Chair John Williams highlighted inflation fears and pushed for rate action but mixed comments from Chicago Fed President Charles Evans poured cold water on the face of policy hawks. Further, firmer prints of the Philadelphia Fed Manufacturing Survey for November, 39 versus 24 expected, as well as softer-than-previous US Initial Jobless Claims of 268, add to the market’s reflation fears.

Additionally, chatters surrounding the US stimulus add to the inflation-linked woes and favor the US dollar’s safe-haven demand, weighing on the EUR/USD prices. The White House expects that the Build Back Better (BBB) plan would reduce the deficit by $112 billion over the next decade in its new analysis and the same increases the odds of the climate and social spending bill’s passage as it's getting voted.

Unlike Fed policymakers, European Central Bank (ECB) Chief Economist Philip Lane said on Thursday that bottlenecks are not expected to get worse and, from here, will ease, according to Reuters. Looking forward, comments from German Central Bank President Jens Weidmann and ECB President Christine Lagarde will join Fed policymakers’ comments to direct short-term EUR/USD moves.

Technical analysis

A two-day-old support line and 23.6% Fibonacci retracement (Fibo.) of November 09-17 downtrend challenge EUR/USD sellers around 1.1950 before directing them to the previous resistance line from November 09, around 1.1315, as well as the yearly low of 1.1263. Alternatively, buyers will wait for a clear break of the previous day’s high near 1.1375 for re-entry. Following that, a joint of the 200-HMA and 50.0% Fibo. near 1.1440 will be crucial for the pair’s further upside.

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