Aug 4 (Reuters) - EUR/USD faced growing signs of a deepening correction lower from its recent rally, but little indication that this was anything more that a tactical retreat within a rising trend.
EUR/USD's bounce above 1.1800, from Monday's low, didn't last long, and the ensuing slide formed an inverted daily hammer while daily RSI turned down from overbought territory -- both indicate short-term downside risks.
However, the wider market backdrop remained EUR/USD-positive, with options investors still hedging for EUR/USD upside.
Volumes of EUR/USD calls bought were at their highest since the start of the coronavirus crisis . Those calls in combination with risk reversals EUR1MRR=FN showing vol premiums for calls exceeding those for puts highlight upside risks for EUR/USD.
Inflation expectations remained EUR/USD supportive, with euro zone 5-year/5-year inflation linked swaps EUIL5YF5Y=R consolidating March-July gains and poised to break key resistance near 1.1815/45%.
U.S. interest rates prospects also tempered EUR/USD's downside outlook, with the U.S. Treasury 10-year yield US10YT=RR hitting a near-five-month low and fed funds futures prices buoyed near recent highs.
EUR/USD dips are likely to be bought and a test near 1.2000 or possibly higher seems likely.
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(Christopher Romano is a Reuters market analyst. The views expressed are his own)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.