• EUR/USD catches fresh bids, looks to resume the recovery above 1.1600.
  • Risk-on mood caps the US dollar’s rebound but positive yields could weigh on the spot.
  • Upbeat US earnings reports cheer markets ahead of the critical Retail Sales report.

EUR/USD is advancing above 1.1600, extending its bounce amid improving market sentiment, which snaps the rebound in the safe-haven US dollar.

However, the EUR bulls remain cautious due to a buying resurgence seen in the US Treasury yields across the curve. The upbeat market mood is reflective of a 0.30% rise in the S&P 500 futures, as the Asian equities track the Wall Street optimism, fuelled by strong corporate earnings for the third quarter.

Robust earning seems to have shifted investors’ attention from growing inflationary risks on the global economy and China’s indebted property sector crisis. Meanwhile, the recent comments from European Central Bank (ECB) President Christine Lagarde also aides the upswing in the euro, especially after she said, “the rebound phase of the euro area economy is increasingly advanced.”

However, it remains to be seen if the recovery attempts in the main currency pair from 15-month lows of 1.1524 sustain amid rising bets for earlier Fed rate hike while the European Central Bank (ECB) refrains from providing any hints on the scale back of the pandemic stimulus.

Further, the risk-on mood-driven rebound in the US Treasury yields could also limit EUR/USD’s advance above 1.1600. Meanwhile, the bulls may turn cautious heading towards the US Retail Sales release, with the American consumer spending likely to drop 0.2% MoM in September while the core figure seen lower at 0.5% as well.

Also, of note remains the US Michigan Consumer Sentiment data and Fedspeak for fresh cues on the Fed’s policy moves and the dollar valuations.

EUR/USD: Technical levels to consider