EUR/USD drops to test 1.0500 as Treasury yields rally

The US dollar garnered significant strength across the board post-European open, triggering aggressive selling in EUR/USD towards the mid-point of 1.05 handle.  

The major finally broke the Asian consolidation box and ran through fresh sellers amid resurgent broad based US dollar demand, as the treasury yields resume the upside. The 2-year yields, which mimics the Fed rate hike expectations, hit the highest levels since July 2009 at 1.346%.  

Market expectations for a Fed rate hike on March 15, when the central bank concludes its next monetary policy meeting, remains near 90%.

Attention now turns towards the US ADP report due later today, which will provide fresh incentives on the USD price-action. Meanwhile, the ECB monetary policy decision due to be announced tomorrow also remains in the limelight.

EUR/USD Technical Levels

Karen Jones, Head of FICC Technical Analysis at Commerzbank, noted, “The market has remained capped by the downtrend at 1.0631. Focus has shifted to last weeks low at 1.0494. Below here we continue to target recent lows at 1.0352/40.”

“The market will remain directly offered below the short term downtrend at 1.0631 and recent high at 1.0679. Above here lies 1.0820/29, which represents the 50% retracement and the recent February high. Only above 1.0830 would introduce scope to 1.0875 December high and the 200 day ma at 1.0955,” Karen added.