EUR/USD steadies above 1.1700 as DXY pares early gains

EUR/USD remains on track to close the day flat.
US Dollar Index lost its momentum amid plunging bond yields.
Flight-to-safety continues to dominate financial markets at the start of the week.

The EUR/USD pair started the new week under modest bearish pressure and dropped to its lowest in more than three weeks at 1.1700. With the greenback struggling to preserve its strength in the second half of the day, the pair managed to erase its losses and was last seen trading flat on the day at 1.1725.

The risk-averse market environment, as reflected by heavy losses witnessed in major global equity indexes due to the Evergrande crisis, helped the USD outperform its rivals on Monday. However, the sharp decline in the US Treasury bond yields capped the US Dollar Index’s (DXY) upside and allowed EUR/USD to rebound during the American session. Currently, the benchmark 10-year US T-bond yield is down 4.7% on a daily basis and the DXY is unchanged at 92.36. Meanwhile, the S&P 500 Index is losing 2.4%.

There won’t be any high-tier macroeconomic data releases featured in the European economic docket on Tuesday. Later in the day, August Housing Starts from the US will be looked upon for fresh impetus but the risk perception is likely to remain the primary driver of USD’s valuation.

EUR/USD near-term outlook

Analysts at Credit Suisse think that EUR/USD could extend its slide with a close below 1.1695.

“Key support remains seen at the 38.2% retracement of the 2020/2021 uptrend at 1.1695, a clear and closing break below which (ideally on a weekly basis) should confirm a major top,” analysts explained. “Assuming we then also see the 1.1663 August low removed, which would be our base case we would look for a more meaningful turn lower with support seen next at 1.1612/04 and eventually back at 1.1495/93.”

EUR/USD: Close below 1.1695 to confirm a major top, next support seen at 1.1663 – Credit Suisse.