EUR/USD picks up bids above 1.2100 despite indecision over reflation fears
- EUR/USD consolidates the previous day’s losses amid quiet markets.
- Hopes of US stimulus, no challenges to Fed, ECB back the bulls.
- US Treasury yields catch a breather after two-day run-up, stock futures track Wall Street losses.
- ZEW numbers, risk catalysts can direct short-term moves ahead of Wednesday’s US CPI.
EUR/USD stays mildly bid around 1.2140 amid Tuesday’s Asian session. In doing so, the currency major pair fails to extend the previous day’s pullback from a 10-week high as market sentiment dwindles. The recent moves seem to struggle for fresh clues as traders are divided over reflation fears and dialing back to the key central banks’ easy money policies.
The European Central Bank (ECB) policymaker Isabel Schnabel recently crossed wires, via Reuters, while rejecting fears from German inflation. The ECB Executive Board Member signaled upside risk to the bloc’s key economy but also said, “the European Central Bank considers this a transient rise and will not adjust policy in response.”
Chicago Federal Reserve Bank President Charles Evans and San Francisco Federal Reserve Bank President Mary Daly were also on the same lines while rejecting the fears of recent early signals for the inflation data. It should, however, be noted that Dallas Fed President Robert Kaplan stuck to his call to discuss tapering but failed to get any support.
It’s worth mentioning that Friday’s NFP-backed risk-on mood fizzled the previous day as market players turn cautious ahead of Wednesday’s US Consumer Price Index (CPI) data. Also, contrasting moves between the increasing covid risk from Asia and upbeat vaccine updates from the West add to the trader’s confusion.
Even so, Wall Street closed in red, led by technology shares, while the US 10-year Treasury yields pause around 1.60% after rising for the last two consecutive days.
Looking forward, May’s ZEW Survey data for Eurozone and Germany will precede comments from various Fed policymakers to offer near-term direction to the EUR/USD traders. However, risk catalysts and the pre-CPI sentiment will be crucial to follow.
Technical analysis
A two-month-old rising wedge formation restricts EUR/USD moves between 1.2190 and 1.2030 respectively.