EUR/USD retreats to 1.1350 on firmer yields, ECB Meeting Accounts eyed

• EUR/USD pares intraday gains, keeps the previous day’s bounce off weekly low.
• Yields cheer Biden’s speech, firmer US data but EU-US rate spread favor pair buyers.
• ECB Meeting Accounts will be watched for clues of monetary policy consolidation amid strong inflation.
• Final reading of Eurozone CPI, German PPI will precede second-tier US economics to decorate calendar.

EUR/USD extends pullback from daily high with the latest drop to 1.1348 heading into Thursday’s European session.

The currency major bounced off the weekly low on Wednesday as the US dollar eased while tracking the Treasury yields. Though, the latest rebound in the US bond coupons, backed by hawkish hopes from the Fed and upbeat US data, seem to weigh on the quote. Also weighing the quote could be the latest disappointment from the US Senate, as far as voting on the Build Back Better (BBB) plan is concerned.

US Senate Democrats witnessed another disappointment from Joe Manchin and Kyrsten Sinema as they surprised colleges by voting against a bid to overturn filibuster rule and advance a voting rights bill that could have eased the path for BBB aid package. With this market’s sentiment turns sour and directs traders towards the US dollar.

Earlier in the day, US President Joe Biden highlighted Chief Trade negotiator Katherine Tai’s efforts to placate Sino-American trade tussles. However, he also mentioned that the US is “'not there yet' on possible easing of tariffs on Chinese goods”. Biden also said, “China is not meeting its purchase commitments.” Further, his comments favoring Federal Reserve (Fed) Chairman Jerome Powell’s push to recalibrate the support (monetary policy) also raised concerns over faster rate hikes and balance sheet normalization, which in turn favored US Treasury yields.

Additionally, US President Biden directly warned Russia not to invade Ukraine and if they do they’ll lose access to the US dollar, which offered an additional burden on the risk appetite and favored the greenback.

However, reductions in the spread between the US Treasury yields and German Bund yields seem to keep EUR/USD bulls hopeful. That said, the German 10-year Bund yields rose beyond 0.0% for the first time since May 2019 on comments from European Central Bank (ECB) policymaker Francois Villeroy de Galhau.

The ECB Board member said, “There is no longer any justification for "whatever it takes" debt support measures to tackle the covid crisis.”

It’s worth noting that firmer US housing market numbers contrasted with the German inflation data matched initial forecasts for December.

Amid these plays, the US 10-year Treasury yields rose three basis points (bps) to 1.856% whereas the S&P 500 Futures print mild gains at the latest.

Looking forward, the final reading of the Eurozone Consumer Price Index (CPI) for December, expected to confirm a 5.0% forecast, will precede the ECB Meeting Accounts to direct immediate EUR/USD moves. Following that, US Jobless Claims, Philadelphia Fed Manufacturing Survey for January and Existing Home Sales for December decorate the calendar.

While the ECB Meeting Accounts will be watched for hints to curtail stimulus and rate hikes, US data may entertain traders ahead of the next week’s FOMC. Above all, risk catalysts and yields are the key.

Technical analysis

EUR/USD printed the week’s first positive daily closing while bouncing off the 200-SMA by the end of Wednesday. However, the rebound couldn’t cross the 100-SMA and was backed by the bearish MACD signals to trigger the latest pullback.

That said, the quote is on the way to retest the 200-SMA level of 1.1325 but an upward sloping support line from late November, around 1.1300, will challenge the EUR/USD pair’s further downside.

On the contrary, a clear upside break of the 100-SMA level near 1.1355 isn’t a green card for the EUR/USD bulls are a horizontal area from November 30, near 1.1380-85, will challenge the pair’s further advances.