EUR/USD defends 1.1300 even as yields refresh 10-week low

  • EUR/USD remains sidelined after Tuesday’s seesaw move, recently consolidating losses.
  • US marks the first Omicron case, ECB push back PEPP tapering on virus woes.
  • Wall Street closed in red, US 10-year Treasury yields inch closer to 1.40%.
  • Eurozone Unemployment Rate, US Jobless Claims eyed but covid updates are the key.

EUR/USD remains sidelined near 1.1320 during early Thursday morning in Asia, following a mildly negative daily performance. The currency major’s latest moves disagree with the fall in the US Treasury yields and the market sentiment following the fresh updates over the South African variant of the coronavirus and central bank, namely the Federal Reserve (Fed) and the European Central Bank (ECB).

Markets initially witnessed risk-on mood following the World Health Organization (WHO) tried calming the virus woes with statements defending the current vaccines and marking less severe impacts of the COVID-19 strain. However, the optimism blew on the news of the first Omicron case in the US.

Adding to the risk-off mood were strong US data and a measured testimony from Fed Chair Jerome Powell. US ADP Employment Change and ISM Manufacturing PMI details for November ticked above market consensus of 525K and 61.0 respectively to 534K and 61.1 in that order. Given the firmer US data supporting the Fed’s hawkish view, Federal Reserve Chairman Jerome Powell reiterated his inflation fears but also said he still believes inflation will come down “meaningfully” in the second half of 2022, during testimony against a Senate Commission.

Recently, Federal Reserve Bank of New York President John C. Williams said, per New York Times, that Omicron could prolong supply and demand mismatches, causing some inflation pressures to last.

It should be noted that the ECB conveyed, per Reuters, that policymakers are increasingly concerned that the economic outlook has become too murky for a comprehensive policy decision to be reached in December.

Against this backdrop, US 10-year Treasury yields dropped 3.7 basis points (bps) to 1.40%, the lowest since late September while the Wall Street benchmarks marked another negative day, despite an upbeat start.

Moving on, Eurozone Unemployment Rate for October and US Weekly Jobless Claims can entertain EUR/USD traders. However, the pre-NFP trading lull can challenge momentum while the covid headlines will add length to the watcher’s list.

Technical analysis

20-DMA level of 1.1363 precedes a double top around 1.1385 to restrict short-term EUR/USD recovery, suggesting gradual declines toward the yearly bottom of 1.1186.