Has EUR/USD finally reached a turning point, or is the bounce another false start?

EUR/USD buyers have had a rough stretch over recent weeks, but there are signs the tide is starting to turn. That shift comes after US inflation figures from this week's CPI and PPI releases, which were stronger than anticipated. Even so, the data is giving the currency pair a boost, with the pair now pushing to 1.1260 on the day, its strongest level in just over a week.

Wednesday's CPI print initially knocked the pair down to 1.1114, but a solid recovery has since taken hold. With that rebound, the technical outlook is beginning to look more favourable for buyers.

Notably, the pair has moved back above its 100-hour and 200-hour moving averages for the first time in five weeks. That is a meaningful change in short-term momentum, all the more so given how those two levels repeatedly limited upside moves during the recent selloff.

Still, there is some work left to do before buyers can count on another push higher.

For starters, buyers are testing resistance at the 23.6% Fibonacci retracement of the August-to-October decline, which sits near 1.1254. A clean break above that level would then put this month's earlier swing highs around 1.1275-80 into focus. Beyond that, the 1.1340-50 area awaits, where the 38.2% Fib retracement at 1.1341 is located.

There is a clear sense that the pair wants to come up for air, but several technical hurdles remain before a more decisive shift in sentiment can be argued. As things stand, this looks more like a pause for the euro than a definitive trend reversal, in my view.

The reason, you might ask, is the bond market.

Treasury yields have pulled back sharply from their recent peaks, and that has relieved some of the strain on the pair as the dollar drifts lower. But with the 10-year yield still above 5%, the broader macro picture has not fundamentally changed. Inflation is still largely sticky, and another rise in yields could quickly derail the EUR/USD recovery.

Nor is Europe without its own worries. France's fiscal concerns remain an ongoing threat, especially if the French-German yield spread starts to widen once more. It is hovering near 138 bps today, not far from the 150 bps peak seen two weeks ago. Any fresh flare-up could quickly renew pressure on the euro.

All told, the charts are affording the euro some breathing space for now. Ultimately, though, the bond market will have the last word on whether this rebound matures into something more meaningful.