EUR/USD fails to hold above 1.20 as USD starts erasing its losses

• DXY finds support near 91.70.
• US T-bond yield rises 1.5% in the early NA session.
• EUR/USD still up nearly 60 pips on the day.

After starting the day in a quiet manner, the EUR/USD pair gained traction during the European trading hours and rose above the 1.20 mark to erase a portion of its losses that it recorded on Monday and Tuesday. However, with the greenback gaining traction in the early NA session, the pair eased back below the 1.20 and was last seen trading at 1.1990, still up 0.45% on the day.

Earlier today, news of China planning to halt its purchases of US government bonds triggered a broad-based USD sell-off. The US Dollar Index quickly broke below the 92 handle to renew its daily low at 91.66. Nonetheless, the index started a modest recovery with the 10-year T-bond yield rising 1.5% in the last hour. At the moment, the DXY is down 0.44% at 91.82.

Furthermore, Dallas Fed President Robert Kaplan in a speech today said that he was expecting the Fed to hike rates three more times and warned over a potential overheating of the economy, adopting a more hawkish tone, unlike the other FOMC members who voiced their concerns over the possibility of soft inflation not being transitory in their comments earlier this week.

Technical outlook

Valeria Bednarik, American Chief Analyst at FXStreet, writes, "from being at risk of a steep slide, the short-term picture has turned bullish in the EUR/USD pair, with the price now back above its 20 SMA in the 4 hours chart, still bearish, after bouncing from a bullish 100 SMA. The Momentum indicator re-entered bullish territory, maintaining its upward slope while the RSI indicator has partially lost its upward strength, but heads higher anyway around 58. Additionally, the pair is back above the 23.6% retracement of its latest bullish run, after recovering from near the 50% retracement of the same rally."

According to the analyst, supports for the pair could be seen at 1.1955 and 1.1920 while resistances align at 1.2030, 1.2065 and 1.12095.