EUR / USD falls back to 1.1850 on renewed USD strength

• EUR / USD turned south during US trading hours.
• The US dollar index extends the recovery to 92.50.
• Rising US Treasury yields provide a boost to the USD on Tuesday.

The EUR / USD pair spent the first half of the day moving sideways slightly below 1.1900, but lost its traction during US trading hours. At the time of writing this report it was down 0.18% on the day to 1.1847.

DXY continues to erase Friday’s losses

The renewed strength of the dollar on Tuesday appears to be forcing the EUR / USD pair lower. The US dollar index, which suffered heavy losses from Friday’s disappointing August employment report, extended its rally and was last seen rising 0.3% to 92.84.

In the absence of high-impact macroeconomic data, the sharp rise in the 10-year US Treasury yield appears to be helping the dollar find demand.

Earlier in the day, data from the euro zone showed GDP growing 2.2% on a quarterly basis in the second quarter. Although this reading was far better than the market’s expectation of a 0.6% contraction, the shared currency struggled to capitalize on it. On a negative note, the ZEW Survey – Economic Sentiment for the Eurozone declined to 31.1 in September from 42.7 in August and disappointed analysts’ estimate of 52.2.

On Thursday, the European Central Bank (ECB) will announce its political decisions. Given the possible impact of the ECB on the EUR / USD, “we expect the ECB to announce a reduced pace of PEPP purchases in the fourth quarter, in part reflecting easier financial conditions,” said analysts at TD Securities. “This backdrop should strengthen the recent EUR / USD bottom, indicating that we are likely to return to 1.20 instead of 1.15 in the coming months.”

Technical levels to take into account