Has EUR/USD found a bottom? A textbook morning star candlestick pattern hints at a potential reversal, but with Scott Bessent’s upcoming confirmation hearing as Treasury Secretary, could bond market dynamics steer the euro’s next move?

Key Highlights:

• Morning star candlestick pattern forms, suggesting a potential EUR/USD bottom.
• Treasury Secretary nominee Scott Bessent’s confirmation hearing may impact yields and risk sentiment.
• Breaking the downtrend resistance targets 1.0461; long positions are preferred for now.

Morning Star Pattern Indicates Possible Reversal

EUR/USD’s recent movement suggests it may have reached its near-term low, as evidenced by a classic morning star pattern on the daily chart. Monday’s bullish pin bar from a key support level adds weight to this perspective. Technical indicators like RSI (14) and MACD have turned bullish, signaling potential upward momentum.

If EUR/USD clears the downtrend resistance established in early December, it could advance towards the 1.0461 level, which previously acted as both support and resistance. While long positions are currently more favorable, waiting for a confirmed break of the downtrend resistance might offer a more cautious entry.

Inflation and Bond Yields in Focus

The US Consumer Price Index (CPI) report, due Wednesday, remains a key hurdle for further EUR/USD gains. Only an unexpectedly sharp rise in core inflation, which could diminish expectations for Federal Reserve rate cuts, might trigger renewed pressure on the euro.

However, the more significant event this week could be Thursday’s Senate Finance Committee hearing for Scott Bessent’s nomination as Treasury Secretary. Markets view Bessent as dovish on rates, and his confirmation might reverse the current trajectory of US Treasury yields. Such a shift could strengthen risk assets, including EUR/USD.

Treasury Yields and Risk Sentiment

US 10-year Treasury futures remain in a downtrend, with bearish signals from RSI (14) and MACD suggesting higher yields in the near term. However, Bessent’s confirmation could act as a turning point. When Bessent was first announced as the nominee in late November, markets responded with a significant rally in Treasury futures, sending yields lower.

A similar market reaction could interrupt the current bond market rout, providing support for EUR/USD. Notably, the pair’s inverse relationship with US 10-year Treasury yields remains strong, making bond market movements critical to its direction.

EUR/USD’s Risk Asset Behavior

Over the past month, EUR/USD has exhibited stronger correlations with equity markets, particularly S&P 500 and Nasdaq futures, than with bond yields. This behavior suggests the pair is functioning more like a risk asset in the current environment. A reversal in Treasury yields could lift both US equities and EUR/USD, underscoring the importance of monitoring macroeconomic and market developments closely.

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