EUR/USD is battling 1.0600 on its road to recovery in the European session on Tuesday. The pair is drawing support from a pause in the US Dollar rally alongside the US Treasury bond yields, as risk sentiment stabilizes. US data awaited.
In the currency pair’s technical overview, the Relative Strength Index (RSI) indicator on the 4-hour chart started to edge higher after touching 30 earlier in the day, suggesting that EUR/USD is making a technical correction. On the upside, 1.0600 (psychological level, mid-point of the descending regression channel) aligns as immediate resistance before 1.0650 (50-period Simple Moving Average (SMA), upper limit of the descending channel). A 4-hour close above the latter could discourage sellers and open the door for an extended recovery toward 1.0700 (psychological level, 100-period SMA).
Looking south, first support is located at 1.0560 (lower limit of the descending channel) before 1.0520 (static level from January) and 1.0500 (psychological level).
Related Content– How to Trade Gold
The fundamental overview discloses that the EUR/USD closed deep in negative territory on Monday and dropped to its lowest level since March at 1.0570 in the Asian trading hours on Tuesday. Although the pair managed to stage a rebound in the European morning, the technical outlook suggests that the bearish bias stays intact.
Major equity indexes in Asia suffered heavy losses for the second consecutive day on Tuesday on news of Evergrande Group missing an onshore bond repayment. Highlighting the risk-averse market atmosphere, the Euro Stoxx 50 Index opened nearly 1% lower. Additionally, US stock index futures were last seen losing between 0.4% and 0.6%, pointing to a bearish opening in Wall Street.
In the meantime, hawkish comments from Federal Reserve (Fed) officials provided a boost to US Treasury yields, helping the US Dollar (USD) outperform its rivals. Chicago Fed President Austan Goolsbee told CNBC that rates will probably have to stay higher for longer than markets had expected and Minneapolis Fed President Neel Kashkari noted that he is in favor of one more rate hike this year.
In the second half of the day, Conference Board will release the Consumer Confidence Index data for September. In August, this data dropped to 106.1 from 114 in July and caused the USD to lose some strength with the immediate reaction. A similarly big decline in the Consumer Confidence Index could limit the USD’s gains in the second half of the day.
Nevertheless, unless there is a noticeable pullback in US yields, or a consistent recovery in US stocks, EUR/USD could find it difficult to rise steadily.