EUR/USD traded flat on Tuesday, losing earlier gains and slipping back below the 200- and 10-day moving averages on broad-based dollar buying and a rise in U.S. yields, but it is unlikely to fall below the 1.0200-1.0500 zone as investors await Fed Chair Jerome Powell's speech on Wednesday.
Recent U.S. data indicate possible economic softening, with home price weakness nN9N2YW01O on Tuesday following contraction in November's S&P Global PMI nZON006UY1 and warnings of potential employment weakness in recent jobless claims nL1N32I1WG.
Though yields rose on Tuesday, they have generally been subdued by recent data as investors see a higher probability of recession moderating in the Fed's hawkish stance.
Treasury curve inversion has extended with help from the data.
The 3-month/10-year spread is near -70 bps, near levels not seen since late-2000 while the 2-year/10-year spread is approaching -75 bps, close to levels not seen in four decades.
The data should keep dollar bulls on defense, but Powell could change this if he sounds hawkish this week.
A less hawkish Powell, however, could lead EUR/USD to break 1.0500 and make a run at 1.0775/00 then possibly 1.1075/00.
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