The euro is in calm waters in the Wednesday session. Currently, EUR/USD is trading at 1.1899, down 0.11% on the day. This follows stronger movement over the first two days of the trading week.
Markets eye ECB meeting
The euro has reversed directions on Wednesday, as the mini-rally a day earlier, which saw the euro claw back to the 1.19 level, has run out of steam. The euro has been under sustained pressure and fell as low as 1.1842 on Monday, its lowest level since November 2020. The US dollar has looked sharp lately, galvanized by the increase in US Treasury yields.
The auction of US 10 and 30-year bonds later on Wednesday could cause stronger volatility from EUR/USD. The Federal Reserve has been rather nonchalant about higher US yields, but the ECB may be uneasy over the spillover of higher US yields, which has pushed the yields on eurobonds higher. This means higher borrowing costs at a time when economic conditions in the eurozone remain weak. The ECB hasn’t had much to say about higher yields, but that could well change on Thursday at the ECB policy meeting. If policymakers pan the rise in yields, investors could respond by selling off euros.
The US economy is showing signs of a deepening recovery, and pent-up demand has raised expectations of higher inflation in the coming months. Investors will be keeping a close eye on US inflation, which will be released on Wednesday (15:30 GMT). If inflation is higher than expected, the Fed may have to consider tapering stimulus earlier than expected.
1.1832 is providing support. This line was under pressure early in the week, but EUR has recovered and moved up to the 1.19 line. 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
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