EUR/USD retreats towards 1.0500 as firmer yields underpin USD rebound, Fed’s Powell eyed

• EUR/USD takes offers to drop back towards intraday low on US dollar recovery.
• Fears of aggressive central bank actions join the return of full markets to renew USD buying.
• Measured comments from ECB policymakers, firmer US Treasury yields exert additional downside pressure.
• Second-tier US data and risk catalysts may entertain traders ahead of Powell’s Testimony.

EUR/USD extends pullback from daily highs to pare intraday losses around 1.0520 heading into Tuesday’s European session.

The major currency pair’s latest weakness could be linked to the US dollar’s rebound while tracking the firmer yields, as well as the return of the full markets. Also weighing on the quote are recent comments from the European Central Bank (ECB) policymakers which sound comparatively less hawkish than their US Federal Reserve (Fed) counterparts.

US Dollar Index (DXY) consolidates the week-start losses around 104.00 as the risk-on mood fades The market sentiment improved on Monday amid the Juneteenth holiday in the US as well as recently downbeat US data and softer US inflation expectations, as per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. It’s worth noting that the US inflation expectations refreshed monthly low on Friday.

On Monday, European Central Bank (ECB) President Christine Lagarde reaffirmed plans to raise the ECB’s interest rates twice this summer. Following that, ECB Chief Economist Philip Lane said, per Reuters, “The European Central Bank (ECB) will not revisit its decision to raise interest rates by 25 basis points at its July 21 meeting.”

It should be noted that the Fed policymakers’ hawkish bias suggesting a 0.75% rate hike has an upper hand over the ECB’s rejection of no major rate lifts than what’s already announced. This allows the US dollar to remain firmer versus the bloc’s currency.

Against this backdrop, the S&P 500 Futures rise around 1.6%, up for the second consecutive day, as it flashes the 3,735 level at the latest. On the same line, the US 10-year Treasury yields extend Friday’s gains to begin the week’s trading around 3.3%, up four basis points (bps) by the press time.

While the return of full markets and the US dollar moves are the key for intraday EUR/USD forecasts, Chicago Fed National Activity Index and the US Existing Home Sales for May could also entertain traders. Even so, major attention will be on Fed Chair Jerome Powell’s Testimony on the bi-annual Monetary Policy Report.

Technical analysis

Failure to provide a daily closing beyond the 21-day EMA hurdle, around 1.0575 by the press time, keeps EUR/USD bears hopeful to revisit the yearly low surrounding 1.0350.