EUR/USD recovery remains capped below 1.1850 as traders await ECB

• EUR/USD fades corrective pullback after two-day fall, sellers attack intraday low of late.
• Cautious mood ahead of the ECB, covid woes keep bears hopeful.
• DXY ignores pullback of US Treasury yields from two-month top, stock futures stay mildly bid.
• Coronavirus updates, stimulus news and Fedspeak can entertain traders but all eyes on ECB’s tapering decision.

EUR/USD fades early Asian corrective bounce while dropping back to 1.1840, at par with the day’s opening levels, heading into Wednesday’s European session.

The major currency pair initially recovered after the US 10-year Treasury yields pause around the two-month top, down one basis point to 1.36% by the press time. However, the US Dollar Index (DXY) refrains from tracking the bond coupon to the south and stays firmer around 92.55 following the biggest daily jump in three weeks.

Behind the moves could be the ongoing grim concerns over the coronavirus and its economic impacts. Recently, covid infections from Australia snapped a three-day downtrend while those from Germany rose 13,565 versus 6,726 the previous day. The doubling of the virus-led hospitalizations in the US in a year and a 67% hike in the covid-led deaths in the last two weeks, versus the previous period, portrays the COVID-19 fears in America. The same push President Joe Biden towards a six-pronged strategy, the details of which will be out on Thursday and Friday.

It’s worth noting that the US stimulus chatters are back to the table as policymakers tease the heavy battle in the House. CNN marked hardships for the Democratic party-backed relief package and say, “House Republicans could face increased pressure to vote against a bipartisan infrastructure package when they return to Washington later this month.” On the same line, Axios mentioned, “Sen. Joe Manchin (D-W.V.) has privately warned the White House and congressional leaders that he has specific policy concerns with President Biden's $3.5 trillion social spending dream — and he'll support as little as $1 trillion of it — Axios' Hans Nichols scoops.”

Other than the virus and stimulus chatters, market participants remain divided over the European Central Bank’s (ECB) next move and underpin the US dollar’s safe-haven demand. It’s worth noting that the recent improvement in the Eurozone Q2 GDP contrasts with the ZEW sentiment data and joins the mixed tone of the ECB policymakers to confuse EUR/USD traders ahead of the week’s key event.

For intraday, comments from the New York Fed President John C. Williams will be the key as traders weigh economic hardships in the US, due to the COVID-19, to forecast tapering. Additionally, risk catalysts like stimulus headlines and virus updates will also be important for near-term guidance.

Technical analysis

EUR/USD bears attack the previous resistance line from late June, near 1.1830, while the 50-DMA level of 1.1800 adds to the downside filters. On the contrary, a horizontal area from June 30 highlights the 1.1910 level as the key hurdle to the north.