EUR/USD: Bears aim for 1.1900 retest with eyes on PMI data

• EUR/USD pares weekly gains, stays pressured around intraday low.
• DXY rebound takes clues from China, infrastructure spending and Delta Plus covid variant.
• Pre-PMI caution joins light calendar to act as extra filters to south.
• Comments from Fed, ECB policymakers will offer additional directives.

EUR/USD remains depressed around 1.1920, snapping a two-day uptrend with 0.14% intraday loss, heading into Wednesday’s European session. The US dollar recovery weighs on the major currency pair ahead of the key PMI data, not to forget speeches from the ECB and the Fed policymakers.

The US dollar index (DXY) rises for the first time in a week, up 0.15% on a day, by the press time as market players reconsider Fed’s approach. Although the US Federal Reserve (Fed) Chairman Jerome Powell reiterated favor for easy money policies, citing employment scenario, the lack of agreement among the Fed policymakers seems to test the market’s optimism.

China’s indirect threat to the US warships in Taiwan Strait and inability to import agreed American goods for phase one deal weigh on the risk appetite and put a safe-haven bid under the US dollar. Also, the Aussie-China tussles and fears of no US-Iran peace add to the market fears. Furthermore, the Delta Plus variant of the coronavirus (COVID-19) and lack of clarity over US President Joe Biden’s infrastructure spending add to the risk-off mood, adding strength to the greenback.

Against this backdrop, S&P 500 Futures print mild gains and the US 10-year Treasury yields stay pressured for the second consecutive day.

Looking forward, preliminary readings of June month activity data from Italy, Germany and the Eurozone, coupled with comments from ECB Vice President Louis De Guindos, will offer the immediate direction to EUR/USD traders. Following that, the US PMIs and Fedspeak will be the key.

Although the ECB is in less danger of monetary policy adjustments, unlike Fed, further weakening of the activity numbers will be desirable to keep the easy money flowing, which in turn can recall the bulls. However, strong US PMIs, coupled with optimistic Fedspeak can weigh on the EUR/USD.

Technical analysis

EUR/USD pulls back from 200-day EMA amid bearish MACD, suggesting further weakness towards the 10-week low near 1.1850.