EUR/USD looks to yearly low under 1.1600, EU/US data, debt ceiling in focus

EUR/USD stays depressed around 1.1590, extending Tuesday’s losses heading into the European session on Wednesday. The major currency pair takes clues from the firmer US dollar to direct bears towards the yearly low marked the last week.

That said, the US Dollar Index (DXY) remains on the firmer footing for the second consecutive day, up 0.06% intraday around 94.05 by the press time. In doing so, the greenback gauge tracks the US 10-year Treasury yields to the north, up 1.6 basis points (bps) near 1.547% at the latest.

Behind the moves is the indecision over the US stimulus and the debt limit extension, not to forget the cautious mood before Friday’s US Nonfarm Payrolls (NFP).

Although US President Joe Biden recently said, per Reuters, “A carve-out of the filibuster for the debt limit is a real possibility,” markets remain divided over the passage of the key debt ceiling amid the Republican control in the Senate. Even so, the global rating giant Moody’s remain optimistic about overcoming the policy deadlock while Biden stays ready to compromise on the infrastructure spending bill’s cap.

Elsewhere, the news of the US Trade Representative’s (USTR) investigation over the exclusion of China imports and US President Biden’s phone call with his Chinese counterpart Xi Jinping, showing readiness to respect the Taiwan agreement, keep buyers hopeful.

It’s worth mentioning that the Fed tapering chatters gained momentum after firmer US PMIs as well as hawkish comments from the US Federal Reserve (Fed) policymakers, which in turn support the US Treasury yields, helping the USD. Though, the record trade deficit in the US and recent challenge from the covid Delta variant, not to forget financial risks emanating from China, poke the hawks. On the same line could be the indecision over Fed Chairman Jerome Powell’s re-election as some among the Senate policymakers don’t like Powell’s style.

On the other hand, European Central bank (ECB) President Christina Lagarde and Governing Council member, as well as Bank of France Head, Francois Villeroy de Galhau turns down the reflation fears. The same highlights today’s German Factory Orders and Eurozone Retail Sales for August for fresh impulse.

Though, major attention will be given to the September month’s US ADP Employment Change, expected 428K versus 374K prior. Above all, risk catalysts are likely to be the key directives ahead of Friday’s US NFP.

Read: US ADP Employment Change September Preview: Yes, its all about the Fed

Technical analysis

EUR/USD portrays a bear flag formation on the four-hour (4H) play amid the easing bullish bias of the MACD, which in turn suggests a clear downside towards the yearly low of 1.1562. However, the break of the stated flag’s support, close to 1.1580, becomes necessary for the sellers to tighten the grips. Meanwhile, corrective pullback remains elusive below a convergence of the 50-SMA, flag's upper line and a downward sloping trend line from the mid-September, near 1.1640.