The EUR/USD price is bouncing back after falling to the lowest level since November last year. It is trading at 1.1858 ahead of the important EU GDP data that will come out in the morning session.
What happened: The EUR/USD dropped sharply yesterday as US Treasury yields soared following the passing of the $1.9 trillion stimulus package. The yield on the ten-year rose to 1.59% for the first time in more than a year. The 5-year and 30-year yields also rose.
Why Treasuries matter: Higher yields are important signals of inflation in the United States. Higher yields, also known as a bond sell-off, happen when investors are bracing for higher inflation, which leads to high interest rates.
Indeed, the US statistics agency will publish the February CPI data tomorrow. Economists see the data showing that the headline consumer inflation rose to 1.7%, helped by higher crude oil prices and the $900 billion stimulus passed in January.
EU GDP data: The EUR/USD price is also rising ahead of the final reading of EU GDP data. Economists expect the data to show that the bloc’s economy contracted by 0.6% in the fourth quarter. This will then lead to an annualised contraction of about 5.0%. However, while GDP numbers are usually important, the data released today will likely not have a major impact on the EURUSD pair. That’s mostly because investors already know what to expect.
The 2-hour chart shows that the EURUSD price has bounced back from yesterday’s low of 1.1836 to the current 1.1858. Still, the downtrend is being supported by the 25-period and 15-period exponential moving averages (EMA). The Relative Strength Index (RSI) has moved from the oversold level of 21 to the current 34.
Therefore, in my view, the downward trend will remain so long as the price is below the two moving averages. As such, there is a possibility that this recovery is a dead cat bounce.
