EUR/USD retreats below 1.1600 on firmer yields, German/US inflation eyed

• EUR/USD snaps three-day rebound from yearly bottom, pressured around intraday low of late.
• Risk-off mood joins rebound of Treasury yields to underpin US dollar strength.
• Inflation, stimulus and China headlines weigh on sentiment.
• US CPI, Fed/ECB chatters eyed for fresh impulse.

EUR/USD prints mild losses around 1.1580, posting first intraday losses in four days heading into European session on Wednesday. The currency major portrays the US dollar rebound, tracking the US Treasury yields amid sour sentiment ahead of the US Consumer Price Index (CPI) data.

In addition to the fresh fears concerning inflation, worries emanating from China also underpin the rush to the risk-safety, which in turn helps the greenback of late.

Policymakers at the US Federal Reserve (Fed) and the European Central Bank (ECB) have been trying to reject rate hike concerns of late. Key among them was Fed Chair Jerome Powell, ECB policymaker Klaas Knot and top supervisor Andrea Enria. However, firmer inflation expectations in the US and Eurozone hint at the need for rolling back the easy money policies.

Recently, St. Louis Federal Reserve (Fed) President James Bullard said during the CNBC interview that he is expecting the US central bank to hike its benchmark rate twice in 2022, after it’s finished with winding down its bond-buying program.

Elsewhere, China’s factory-gate inflation jumped to a 26-year high in October whereas the headlines CPI also rose past market consensus and previous readouts, beefing the up reflation woes.

It should be noted that a 50% slump in share prices of China’s real estate player Fantasia Group after a month-long trading halt also backs the recent concerns over property players’ troubles in Beijing and weighs on the mood. The same could be witnessed in red prints of Chinese equities.

Against this backdrop, S&P 500 Futures decline 0.40% whereas the US 10-year Treasury yields consolidate the previous day’s losses around the six-week low near 1.46%.

Looking forward, inflation numbers from Germany may offer immediate direction to the EUR/USD prices ahead of the US CPI figures. Should the price pressure remain escalated, the USD strength could keep the quote directed towards the south.

Read: US October CPI preview: Inflation data unlikely to discourage gold bulls

Technical analysis

The pullback from 21-day EMA directs EUR/USD bears towards October lows near 1.1525. However, any further weakness will be challenged by the yearly low near 1.1515 and the 1.1500 threshold.