EUR/USD falls to 1.0525 on Gaza escalation and political uncertainty

• The EUR/USD pair extends its decline on Wednesday and retreats to 1.0525.
• The Euro failed to reach the 1.0600 area, as the market sentiment is rather bearish.
• US Treasury yields are rising again, with the 10-year Treasury yield at its highest price since 2007.

The pair EUR/USD entered trading on Wednesday with the intention of reclaiming the 1.0600 level in the early sessions, but the resurgence of risk aversion flows in the markets has pushed the Euro (EUR) in front of US dollar (USD), removing yesterday’s low and testing the waters near 1.0520.

Currently, the pair is trading back at 1.0550 in a relieving pullback, but the overall market sentiment remains bearish and bullish momentum is likely to remain limited.

Global tensions rise as the conflict between Israel and Hamas in the Gaza Strip escalates; The latest rocket attack on a Gaza hospital has claimed one of the largest civilian casualties in recent history, with more than 500 people killed as they sought refuge in the hospital before a rocket hit the building. Both Israel and Hamas have blamed each other for the attack on the building.

The US Congress, blocked by the failure of the vote on the president of Parliament, worries investors about the imminent crisis of funds

Political uncertainty increases in the United States, where Congress has failed to elect a new president of the House of Representatives, after two votes in two days in which a candidate has not been achieved. With Congress paralyzed after the Republican majority impeached its own president, the US is just 30 days away from the end of a short-term funding hiatus that was secured at the last minute earlier this month.

With the US set to face a new funding conflict in mid-November, uncertainty is rising and investors are flocking to safe assets, propping up the dollar and pushing US Treasury yields to multi-year highs, with The 10-year Treasury yield hit 4.928% on Wednesday, its highest yield since 2007.

Wednesday’s EU Consumer Price Index (CPI) inflation figures were as expected, with September CPI inflation at 0.3%, and European Central Bank (ECB) President Christine Lagarde noted that the Core inflation remains strong, with wage growth remaining “historically high.”

U.S. initial jobless claims will be released on Thursday, and investors expect 212,000 new jobless claims for the week of October 13, up from 209,000 the week before.

The Chairman of the US Federal Reserve (Fed), Jerome Powell, will also give a speech tomorrow. Fed Chair Powell will speak at the Economic Club of New York Luncheon around 16:00 GMT on Thursday.

EUR/USD Technical Outlook

The EUR/USD pair continues to face rejection of a firm descending trend line drawn from the July high at 1.1275. The pair is struggling to maintain a bullish bounce from the latest swing low at 1.0450, and a bearish continuation would lead the pair to mark a new 10-month low.

Short-term resistance comes from the 50-day SMA, which is currently declining in the 1.0700 area, while the 200-day SMA is beginning a bearish rollover just north of the 1.0800 area .

EUR/USD Daily Chart

EUR/USD technical levels