EUR/USD: Risk-aversion pokes bulls at monthly top below 1.0300, Fedspeak, US NFP eyed

• EUR/USD retreats from one-month high, pares gains during three-day uptrend.
• Treasury yields drown the US dollar amid “technical recession”, mixed US data.
• China-linked headlines, economic fears surrounding the bloc probe upside momentum.
• Speeches from Fed’s Evans, Bullard could entertain traders but US NFP is the key.

EUR/USD bulls struggle to keep reins despite refreshing one-month high near 1.0300 during Tuesday’s mid-Asian session, retreating to 1.0260 by the press time. In doing so, the major currency pair justifies the market’s risk-off mood while also keeping the broad US dollar weakness in mind ahead of important data/events.

That said, the US Dollar Index (DXY) fails to cheer the risk-aversion wave as it dropped to the fresh low in a month as bears approached the 105.00 mark before recently printing the 105.30 level. The greenback’s weakness could be attributed to the downbeat US Treasury yields as the benchmark 10-year US bond coupon declines 6.9 basis points (bps) to 2.54% at the latest.

The recently disappointing US PMIs joined the last week’s US Gross Domestic Product (GDP) to portray economic fears for the US and drowned the US dollar. On the same line could be Fed Chair Jerome Powell’s indirect signals that the hawks are running out of steam.

On Monday, the US ISM Manufacturing PMI dropped to the lowest since 2020 in July as the activity gauge dropped to 52.8 versus 53.0 prior. However, the actual figures were better than the 52.0 market forecast. Also, final readings of the US S&P Manufacturing PMI eased below 52.3 initial estimates to 52.2, compared to 52.7 prior.

It’s worth noting, however, that the downbeat German Retail Sales, to -8.8% YoY versus -8.0% expected and an upwardly revised 1.1% prior, appeared to have put a floor under the US dollar’s decline. Additionally challenging the greenback bears could be the bloc’s energy crisis and the risk-negative headlines from China.

Reuters quotes three sources familiar with the matter to mention that US House of Representatives Speaker Nancy Pelosi was set to visit Taiwan on Tuesday as the United States said it wouldn't be intimidated by Chinese threats to never "sit idly by" if she made the trip to the self-ruled island claimed by Beijing. Furthermore, the news suggests that the US is considering limiting shipments of American chipmaking equipment to memory chip makers in China. Additionally, a Chinese media report suggesting the dragon nation’s readiness for a military drill in Bohai, South China Sea, also raises alarms of the fresh Sino-American tussles over the diplomatic issue.

Against this backdrop, Wall Street closed with mild losses while the S&P 500 Futures extend the previous day’s pullback from a two-month high.

Looking forward, headlines surrounding China and the recession will be important for the market sentiment ahead of today’s speeches from Chicago Fed President Charles L. Evans and President of the Federal Reserve Bank of St. Louis James Bullard will be important for intraday directions. However, major attention will be given to headlines surrounding China and the recession.

Technical analysis

Although the first daily closing beyond the 21-day EMA since late June keeps EUR/USD buyers hopeful, a two-month-old resistance line, at 1.0375 by the press time, challenges the upside momentum. Also important hurdle is the convergence of the 50-day EMA and an upward sloping trend line from mid-May, close to 1.0365-75.

Alternatively, a downside break of the 21-day EMA, close to 1.0235 at the latest, needs validation from a three-week-old ascending support line, at 1.0160 by the press time, to convince EUR/USD bears.