EUR/USD advances toward 1.0850 ahead of Lagarde

EUR/USD is extending gains toward 1.0850 in the European session on Monday. The US Dollar is dragged lower by sluggish US Treasury bond yields, despite a tepid market mood. Lagarde's speech and US data are next in focus. 

Technical Overview

EUR/USD started to edge higher after touching the ascending trend line support, currently located at around 1.0820. Additionally, the Relative Strength Index (RSI) indicator on the 4-hour chart rose to 60 after retreating toward 50 late Friday. Both of these developments suggest that buyers remain interested.

The 200-period Simple Moving Average (SMA) at 1.0830 aligns as a pivot level for EUR/USD. Once the pair stabilizes above that level and confirms it as support, 1.0860 (Fibonacci 38.2% retracement of the latest downtrend) could be seen as the next resistance before 1.0900-1.0910 (psychological level, Fibonacci 50% retracement).

If EUR/USD fails to clear 1.0830 and makes a 4-hour close below 1.0820, technical sellers could take action. In this scenario, 1.0800 (psychological level, Fibonacci 23.6% retracement) and 1.0780 (100-period SMA), could be seen as next support levels.

Fundamental Overview

Despite Friday's indecisive action, EUR/USD closed the previous week in positive territory. The pair continues to inch higher early Monday and the technical outlook suggests that the bullish bias remains intact.

The US Dollar (USD) struggles to find demand in the European morning as US Treasury bond yields stretch lower. After losing nearly 2% on Friday, the benchmark 10-year US Treasury bond yield is already down another 1% on Monday, retreating toward 4.2%. Later in the day, the US Treasury will hold 5-year and 2-year note auctions. A pullback in high-yields in these auctions could put additional weight on the USD's shoulders.

In the meantime, US stock index futures are down between 0.2% and 0.3% in the European session. Following the previous week's risk rally, a negative shift in market mood could help the USD stay resilient against its rivals.

January New Home Sales will be the only data featured in the US economic docket, which is forecast to rise to 680,000 from 664,000. An unexpected decline in this data could highlight the negative impact of high interest rates on the real estate market and make it difficult for the USD to find demand with the immediate reaction.