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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eur/usdhttps://tmsnrt.rs/3fwjuae
eur/infhttps://tmsnrt.rs/2C0GjoU
eur/volhttps://tmsnrt.rs/39RT0yQ
(Christopher Romano is a Reuters market analyst. The views expressed are his own)
((christopher.romano@thomsonreuters.com;))
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.