The euro has rebounded on Tuesday, erasing most of the losses seen on Monday. Currently, EUR/USD is trading at 1.1901, up 0.46% on the day.
Euro under pressure from US bond yields
The euro had its way with a wobbly US dollar late in 2020 and pushed close to the 1.23 line in late February. However, the euro has been under sustained pressure since then. EUR/USD is barely hanging onto the 1.19 level and finds itself close to lows not seen since November 2020. The euro has posted considerable gains on Tuesday, but will this prove to be a blip in the currency’s downturn?
With the US dollar getting a strong boost from higher US Treasury yields, attention has shifted to the ECB policy meeting on Thursday. The bank is none too happy about the rise in US Treasury yields, which, along with higher oil prices, has led to eurozone yields moving higher as well. The eurozone economy remains fragile due to the Covid pandemic, with the vaccine rollout proceeding slowly and strict health restrictions still in place across much of the bloc. Higher bond yields mean higher borrowing costs, which could impede an economic recovery. ECB President Christine Lagarde hasn’t said much about the jump in eurozone yields, perhaps being careful not to shake up the markets. Still, the market wants answers on whether the ECB will have a nonchalant stance to higher eurozone yields, as the Fed has shown in its relaxed response to higher US yields. If ECB policymakers voice their concern about higher yields, we can expect the euro to lose ground.
We are not seeing any change in the weekly support and resistance lines.
On Monday, EUR/USD put strong pressure on support at 1.1832 but the line held strong. The pair has rebounded higher on Tuesday, giving this support level some breathing room.
Below, there is support at 1.1.753, which has held since mid-November 2020. If EUR/USD breaks materially below the 1.1800 line, the pair could fall into 1.16 territory. On the upside, there is resistance at 1.2052, followed by 1.2193.